Personal Guaranty

A personal guaranty is one of the most consequential terms a practice owner can sign. Landlords often require it, especially from newer practices or single-owner entities, because it lets them pursue the guarantor's personal assets — home, savings, investments — if the business defaults on the lease. This exposure can far exceed the value of the business itself. Several strategies limit the risk. A 'good guy' guaranty caps personal liability to the period before the tenant properly vacates and surrenders the space, rather than for the full lease term. A burn-off provision releases the guaranty after the tenant demonstrates a track record of on-time payments. A capped guaranty limits liability to a fixed dollar amount. For an owner weighing a long lease with an expensive buildout, negotiating the scope and duration of a personal guaranty is as important as negotiating the rent — it defines how much personal risk the business decision carries.

A personal guaranty puts an owner's personal assets on the line. Negotiating its scope, cap, and duration can dramatically reduce the personal risk of a business lease.

A dentist opening a first practice negotiates a 'good guy' guaranty with a burn-off after three years of on-time payments, instead of a full personal guaranty for the entire 10-year term — sharply limiting personal exposure.