Quick answer
A personal guarantee on a commercial lease makes you personally responsible for the tenant company's obligations: rent, outgoings, repairs and make-good, often for the full term and any renewals. You can usually negotiate it. Ask for a cap (a set number of months' rent), a sunset date, release when the lease is assigned or the business sold, or a bigger bond or bank guarantee in its place. Get a lawyer to read it before you sign.
Key points
- A lease guarantee usually covers more than rent: outgoings, interest, legal costs, repairs and make-good too.
- Most guarantees run for the whole term plus renewals, and keep running after you sell unless you're released in writing.
- Ask for a cap, a sunset date, release on assignment, or a larger bond or bank guarantee instead.
- Retail lease rules differ by state, so check your state's small business commissioner before you negotiate.
You’ve found the shop, the workshop or the little unit with roller doors that suits the business. The agent sends over the lease, and tucked in the back is a deed of guarantee with your name on it. The landlord’s reasoning is simple: your company is new, has few assets, and they’d like someone with a house behind it.
It’s a fair thing for a landlord to ask. It’s also one of the biggest personal promises you’ll make, so it deserves more than a quick signature at the agent’s desk.
What does a personal guarantee on a commercial lease actually cover?
Most owners assume it covers rent. Read the guarantee and indemnity clause and you’ll usually find a much longer list:
| What it may cover | Why it matters |
|---|---|
| Rent and rent reviews | The rent rises over the term, and you guarantee the higher figure |
| Outgoings | Council rates, water, strata levies, insurance, often passed on to the tenant |
| Interest and legal costs | Charged if the landlord has to chase the money |
| Repairs and make-good | Restoring the premises at the end, which can be a big bill |
| Renewals and options | Often caught by wording like “the term and any extension or renewal” |
| Holding over | Some guarantees keep running while you stay on after the lease ends |
| Variations | Changes the tenant and landlord agree later, sometimes without telling you |
The last row is the quiet one. Many guarantees say you stay liable even if the lease is varied, and even if the landlord gives the tenant extra time, without your consent. If that’s in your document, ask for it to come out or for your consent to be required for anything that increases the obligations.
Your own exposure is also bigger than the monthly rent suggests. A five-year lease at $6k a month is $360k of rent over the term, before outgoings and make-good. That’s the figure to hold in your head when you sign.
Can a lease guarantee reach the family home?
A guarantee makes you personally liable. If the tenant company stops paying and the landlord obtains a judgment against you, they can pursue assets in your name, and a home is the one most owners worry about. Some lease documents go further with a charging clause giving the landlord an interest in land you own, which can support a caveat on the title.
We cover the same pattern for suppliers in our guide to the trade account personal guarantee. The lease version is usually bigger and longer.
If your home is owned jointly, the signer’s share is what’s mainly exposed. But a partner who isn’t in the business shouldn’t be talked into co-signing for convenience. Our page on protecting the family home explains how exposure works, and the lender’s view of it is in personal guarantees on business loans.
What can you ask for instead of, or on top of, an unlimited guarantee?
Landlords negotiate. They want reliable rent more than they want a fight. The usual asks, roughly in order of how often they succeed:
- A cap. Limit the guarantee to a number of months’ rent, such as six or twelve, rather than everything for the full term.
- A sunset date. The guarantee ends after, say, 24 months of on-time rent and no defaults.
- A bigger bond or bank guarantee in place of the personal one. Instead of your house, the landlord holds extra security. The Victorian Small Business Commission notes that the amount of a deposit isn’t set by retail lease legislation, so it’s a negotiated figure.
- Rent in advance. A few months up front can reassure a landlord who’s worried about a new company.
- Release on assignment. When you sell and the buyer is approved, you’re released, in writing, from future liability.
- Consent before variations. Rent increases beyond what’s in the lease, or extra obligations, need your signature.
- Notice of default. The landlord has to tell you when the tenant is in arrears, so you can step in early rather than discover a six-month debt.
Put the requests to the landlord or agent in writing and ask a commercial lease solicitor to mark up the guarantee. It usually costs a fraction of one month’s rent.
If the landlord only says yes to a bigger bond, you might need cash for it. A business-purpose loan can sometimes cover a lease bond without putting the home behind the lease, and a short enquiry will tell you whether that’s worth a conversation.
How does a bank guarantee compare with a personal guarantee?
A bank guarantee is a promise by your bank to pay the landlord if you don’t. It keeps the landlord’s claim off your home. But the Queensland Small Business Commissioner’s fact sheet and law-firm guides point out the trade-offs:
- The bank usually asks for security of its own, often a cash term deposit or other collateral, which ties up working capital and can reduce borrowing capacity.
- There can be fees to issue and maintain it.
- Banks use a standard form and are unlikely to change it, so the landlord has to accept what the bank offers.
- Landlords often want it to have no expiry date, or to run three to six months past the lease end.
So you swap exposure of your home for a locked-up deposit. For an owner with some cash set aside, that’s often the better trade. For one who needs every dollar in the shop, a capped guarantee may suit better.
What happens to the guarantee when you sell or leave?
This is where lease guarantees do the most damage. Unless the documents say otherwise, the guarantee keeps running. You can sell the business, the new owner can take over the lease, and the landlord can still come to you if they don’t pay.
Retail lease rules can help, and they differ by state. In NSW, the Small Business Commissioner explains that a “no release” clause in an assignment deed can be displaced if the landlord has consented and the outgoing tenant’s disclosure statement is delivered in time, which it describes as seven days before settlement. Without that, the clause may stand and the guarantor may remain liable. The Victorian Small Business Commission describes a case where, after a completed assignment with the proper disclosure and consent, the tenant and its guarantors were released from the incoming tenant’s obligations. Your state’s rules, and whether your lease is covered by retail lease legislation at all, determine what applies to you, so check with your state’s commissioner or a lawyer.
Landlords commonly replace the outgoing guarantee with one from the buyer’s directors. That’s the moment to insist on a deed of release, signed by the landlord. Our guide to releasing a personal guarantee walks through the steps.
A worked example
Illustrative only. A solo director signs a five-year lease for a workshop at $4,500 a month plus outgoings, with a guarantee that covers “all obligations under the lease and any renewal”. Before signing she asks a solicitor to review it. She then asks the landlord for three changes: a cap at nine months’ rent, an end date after two years of on-time payments, and release on assignment to an approved buyer. The landlord agrees to the cap and release, and to a sunset after three years, in return for a bond of three months’ rent.
Her worst-case exposure on that guarantee falls from five years of rent and outgoings to nine months’ rent, and it expires in year three. The bond comes from a small business-purpose facility, not from the home.
The numbers are invented, but the process is real and usually takes a couple of emails.
How does a lease guarantee affect your next loan?
Lenders ask about contingent liabilities, and a lease guarantee for years of rent is one. A short, honest list helps you and the lender: for each guarantee, who it’s to, what it covers, whether it’s capped and when it ends.
If you’re a one-director company, every guarantee lands on the same person. Business loans for a one-director company covers how that’s read, and the personal or business tool lays out what sits in your name and what sits in the company’s.
Does unfair contract terms law help?
Sometimes. Under the Australian Consumer Law, unfair terms in standard form small business contracts can be challenged, and business.gov.au sets out who qualifies and how it works. The catch: only a court can declare a term unfair, and a lease whose terms you negotiated may fall outside it. Treat the law as a back-stop, not a plan. The plan is to negotiate before you sign.
Before you sign: check what the guarantee does to your options
A lease guarantee isn’t a reason to walk away from a good site. It’s a reason to know your worst case and to shape it. We help owners work through the money side of the same decision: whether a bond or fit-out is better funded by a business loan, what a guarantee does to the way a lender sees you, and whether a loan isn’t the answer at all.
Enquiring takes about 60 seconds and your credit file isn’t touched just for asking. We won’t send your details to a pile of lenders, so your phone stays quiet. A real person reads your situation and calls you. Please fill the form in accurately, including the guarantees you’ve already given, so we can find the right option the first time.
Frequently asked questions
Can I refuse to give a personal guarantee on a lease?
You can refuse, but the landlord can then refuse to lease to you. It's a commercial negotiation. Landlords often accept alternatives: a larger cash bond, a bank guarantee, rent paid in advance, or a guarantee that's capped or falls away after a track record of on-time rent.
How long does a personal guarantee on a lease last?
Unless the document says otherwise, usually for the whole lease term and any options or renewals, and until the landlord releases you in writing. Some guarantees even cover holding over after the lease ends. Ask for a sunset date, for example after 24 months of on-time rent.
Does the guarantee reach my family home?
A guarantee makes you personally liable, so if the landlord wins a judgment against you, assets in your name, including a home, can be pursued. Some leases also include a charging clause over property. If the home is in joint names, think carefully before a partner signs. Get independent legal advice.
What if I sell the business or assign the lease?
The landlord's consent is normally needed, and they'll often ask the buyer's directors for a new guarantee. Whether you're released depends on your state's retail lease rules and the wording of the assignment. In NSW, for example, the Small Business Commissioner says disclosure timing can decide whether a 'no release' clause stands. Don't assume you're free until you have release in writing.
Is a bank guarantee better than a personal guarantee?
It keeps your home out of the lease, but the bank usually wants security of its own (often a cash deposit or other collateral), may charge fees, and ties up capital. It's a trade: less personal exposure, less working capital.
Will a lease guarantee affect my business loan application?
It can. Lenders ask about contingent liabilities, and a guarantee for several years of rent is one. Keep a short list of every guarantee you've signed, with limits and end dates, so you can answer accurately.
Do unfair contract term laws protect me from a harsh guarantee?
Sometimes. Small businesses are protected from unfair terms in standard form contracts under the Australian Consumer Law, but only a court can decide a term is unfair, and negotiated terms may fall outside it. Negotiating before signing is far cheaper.