Limited Personal Guaranty

Landlords require security deposits during the term of almost all leases.  Most commonly, this protection takes the form of a letter of credit or cash security deposit, determined primarily by the financial strength of the tenant.  However, for tenants of more limited means, a landlord may also request a personal guaranty to reinforce the contract. This document makes the signing officer(s) (the guarantors) personally liable.

Choyce Peterson suggests avoiding a personal guaranty, if possible, but if you must sign one, it should be a limited type called a “good guy” guaranty.

Unlike a standard guaranty, a Good Guy limits the liability of the individual. Should a company default on the lease, the company AND the guarantors are generally responsible as soon as the default occurs.  But with a Good Guy, if the space is vacated immediately, the guarantor is no longer liable, only the company.

The difference benefits both landlord and tenant alike. Of course, the guaranty becomes effective if a tenant defaults on the payments, thus encouraging prompt compliance.  But if default does occur, the landlord knows the space will become available quickly to avoid personal liability by the guarantor. Thus, the landlord can re-rent an office without going through expensive and time-consuming legal channels. 

Perhaps, the nomenclature is appropriate because both the tenant and the landlord are “good guys” and resolve the issue for both sides accordingly!