Signed a Personal Guaranty on Your Commercial Lease? Here Is What It Means

When a business signs a commercial lease, the landlord may ask the owner or another individual to sign a personal guaranty. The business becomes the tenant, but the individual promises to stand behind some or all of the tenant’s obligations. For a business owner, that can turn a company-level lease problem into a personal financial exposure. If the business later fails, closes, or stops paying rent, the landlord may look beyond the company and pursue the individual who signed the guaranty.

If you are negotiating or defending a commercial lease obligation, the Commercial Real Estate Attorney practice area provides broader information about legal issues affecting commercial property transactions and disputes. A personal guaranty is a separate contractual obligation that should be read independently from the lease itself. Nevada courts have recognized that a guarantor’s obligation can be separate from the underlying obligation and that the scope of liability is determined by the language of the guaranty. 

What Is a Personal Guaranty?

A personal guaranty is a contractual promise by an individual to answer for obligations owed by another party, usually a business entity. In a commercial lease, the company may be the tenant while the business owner signs separately as the guarantor.

The practical purpose is straightforward. A landlord may be concerned that a newly formed company has limited assets or operating history. Requiring an owner’s personal guaranty gives the landlord another source of recovery if the tenant defaults.

But the word guaranty does not tell you how much exposure the individual has. One guaranty might cover only unpaid rent for a limited period. Another might cover rent, operating expenses, repair obligations, damages, attorneys’ fees, and other amounts arising from the lease. Some are capped; others are drafted to be broad and continuing.

The actual language controls.

Your Business and You Are Not Automatically the Same Debtor

One of the most important concepts is the distinction between the business tenant and the individual guarantor.

If an LLC signs the lease, the LLC is ordinarily the tenant. Your personal guaranty creates an additional contractual relationship between you and the landlord. Nevada Supreme Court authority describes a guaranty as an obligation separate from the underlying debt, with the guarantor’s liability determined by the guaranty itself.

That means the business’s failure does not automatically mean the guarantor owes every amount the landlord claims. The landlord still has to establish what the tenant owes and what the guaranty actually covers.

Conversely, forming an LLC does not protect an owner from obligations the owner separately agreed to guarantee. Signing a personal guaranty is precisely how a landlord can obtain contractual protection beyond the tenant entity.

What Can the Guaranty Cover?

This depends entirely on its wording. A guaranty may cover base rent, additional rent, common-area maintenance charges, taxes, insurance, late fees, repair costs, damages arising from default, and attorneys’ fees. It may also apply to obligations arising from lease amendments, renewals, extensions, or other agreements.

The most important provisions to examine are the definition of guaranteed obligations, the duration of the guaranty, any monetary cap, and language concerning amendments or extensions.

A guaranty that covers “all obligations of Tenant under the Lease” is materially different from one that guarantees only “payment of base rent” or limits liability to a stated dollar amount.

This is why looking only at the lease can be misleading. The personal guaranty may contain terms that significantly expand or limit the individual’s exposure.

Is the Guaranty Limited or Unlimited?

Commercial landlords sometimes negotiate a guaranty with a dollar limit, a time limit, or a declining obligation. Other guaranties are drafted as broad, continuing guarantees.

A limited guaranty might cover the first 12 months of rent, a specified dollar amount, or particular categories of tenant obligations. An unlimited guaranty may attempt to cover all obligations identified in the document.

There can also be “good guy” or conditional guaranty structures in commercial leasing, where the guarantor’s exposure changes if the tenant vacates and satisfies specified conditions. The exact structure matters because these arrangements are contractual rather than interchangeable legal concepts.

A business owner should never assume that a guaranty is limited simply because the landlord described it that way during negotiations. The executed document is what matters.

What Happens When the Business Stops Paying Rent?

If the business defaults, the landlord may pursue remedies against the tenant under the lease and applicable Nevada law. If a personal guaranty covers the tenant’s unpaid obligations, the landlord may also pursue the guarantor according to the guaranty’s terms.

The landlord’s claim against the guarantor is not necessarily identical to the landlord’s claim against the tenant. The guaranty may impose different conditions, limits, or procedures.

Nevada law provides specific procedures for commercial rent defaults and possession proceedings, including statutory notice requirements. Those procedures concern the landlord’s rights against the tenant and do not by themselves determine the scope of a separate personal guaranty. The guaranty must be analyzed independently.

A landlord may therefore have multiple potential avenues: enforcing the lease against the business, seeking possession of the premises, pursuing amounts owed, and enforcing the guaranty against the individual to the extent the guaranty permits.

Can the Landlord Sue the Guarantor Directly?

Potentially, depending on the guaranty’s terms and the nature of the obligation.

One important distinction is whether the document guarantees payment or merely collection. A payment guaranty can generally impose liability according to its terms without requiring the creditor to exhaust every collection remedy against the primary obligor first. Nevada law recognizes the distinction between guarantors and sureties and treats the guarantor’s obligation according to the guaranty contract.

The precise wording therefore matters. Provisions using terms such as “absolute,” “unconditional,” or “payment when due” may create substantially different exposure from a document requiring the landlord to pursue the business first.

Do not rely on the label alone. Courts look at the actual contractual language and applicable law.

What If the Business Files Bankruptcy?

A business bankruptcy does not necessarily eliminate an individual’s liability under a personal guaranty.

The company and the guarantor are separate parties. If the guaranty independently makes the individual responsible for specified obligations, the company’s bankruptcy does not automatically erase that contractual exposure.

The effect of bankruptcy can become particularly complicated when the lease is rejected, rent obligations continue to accrue, or the landlord has claims against both the tenant and guarantor. The guaranty’s treatment of future obligations, termination, and damages should therefore be examined carefully.

A business owner should also avoid assuming that a bankruptcy filing by the company automatically protects the individual guarantor from collection activity.

Can the Guaranty Cover Attorneys’ Fees?

It can, if the contract provides for them and the provision is enforceable.

Nevada courts generally recognize that parties may contract for attorneys’ fees. In a recent federal Nevada case involving a personal guaranty, the court enforced an express guaranty provision requiring the guarantor to pay reasonable attorneys’ fees and expenses associated with enforcing the guaranty. 

This can materially increase exposure. A guarantor may be concerned about unpaid rent, but the eventual claim could also include late charges, other contractual amounts, collection expenses, and attorneys’ fees if the governing documents permit them.

The lease and guaranty should therefore be reviewed together when estimating potential liability.

Does Signing Without Reading the Guaranty Help?

Usually, simply saying that you did not read the document is not a strong defense.

In Pentax Corp. v. Boyd, the Nevada Supreme Court addressed a guaranty and rejected the argument that the signer was not bound merely because he claimed not to have read or understood the document. The court noted that parties can be held to contracts they sign, subject to applicable contract principles. 

That does not mean every guaranty is enforceable regardless of its defects. Issues involving authority, fraud, ambiguity, execution, consideration, statutory requirements, and other defenses can matter. But “I did not realize I was personally guaranteeing the lease” is not something a business owner should expect to resolve the problem by itself.

Does a Personal Guaranty Have to Be in Writing?

A guaranty of another person’s or entity’s obligation generally falls within Nevada’s statute of frauds and should be documented in writing.

In Tore, Ltd. v. Church, the Nevada Supreme Court considered an alleged oral promise to answer for a corporation’s lease obligations and discussed NRS 111.220(2), which requires certain promises to answer for another’s debt, default, or miscarriage to be in writing. 

The Nevada Supreme Court has also addressed the requirements for a written guaranty in Pentax Corp. v. Boyd, including the need for the document to identify the obligation being guaranteed and contain sufficient essential terms. 

This does not mean that every technical defect automatically defeats a guaranty. The circumstances and documents involved matter. It does mean that the executed guaranty should be examined carefully rather than assuming an informal promise has the same effect as a signed contractual guaranty.

Can You Negotiate the Guaranty Before Signing?

Yes. The guaranty is part of the commercial lease negotiation, and its scope can be negotiated before execution.

A business owner may seek a dollar cap, a limited duration, a burn-off provision after a period of timely payments, exclusion of lease extensions or amendments, or limits on attorneys’ fees and other obligations. The landlord may accept, reject, or negotiate those proposals based on the perceived credit risk.

The important point is to negotiate before signing, not after the business has defaulted.

Once the guaranty has been executed, changing the individual’s obligations generally requires agreement under the applicable contractual circumstances. A later request to reduce liability may be much harder to negotiate.

What Should You Review Before Signing?

Start with the definition of the guaranteed obligations. Determine exactly what the landlord can demand from you personally.

Then examine duration and termination. Does the guaranty end on a particular date, after a payment history, when the lease expires, or only after every guaranteed obligation has been satisfied?

Next, check whether amendments, renewals, extensions, rent increases, or modifications to the lease can increase your exposure without a new guaranty. Also review waiver provisions, notice requirements, attorneys’ fees, collection costs, and any provisions concerning the landlord’s remedies.

Finally, consider the worst-case scenario rather than the expected one. If the business fails six months into the lease, ask what the guaranty could require you personally to pay. That is the real economic exposure you are agreeing to assume.

About Milan Chatterjee

This article was prepared by Milan Chatterjee, a Nevada and California licensed attorney and founder of My Real Estate Lawyer, a real estate law practice dedicated to protecting property owners, investors, landlords, homeowners, businesses, and community associations throughout Nevada.

Milan Chatterjee focuses on real estate litigation and disputes involving property purchases and sales, property transfers, quiet title actions, title disputes, boundary disputes, easements, foreclosure, landlord-tenant matters, HOA disputes, and related real estate issues. He is a graduate of UCLA School of Law and NYU School of Law and previously served as Associate Compliance Counsel at Las Vegas Sands. He helps clients throughout Las Vegas, Reno, and other communities across Nevada.

Frequently Asked Questions

Conclusion

Signing a personal guaranty on a commercial lease can substantially change the financial risk of operating a business. The company may be the tenant, but the guaranty can create a separate contractual obligation that allows the landlord to pursue the individual within the scope of the guaranty.

The most important question is not simply whether you signed a guaranty. It is what exactly did you guarantee? The answer depends on the document’s language, the underlying lease, any amendments, applicable Nevada law, and the circumstances surrounding the default.

Nevada courts recognize that guaranty obligations are contractual and can be separate from the underlying obligation. A guaranty may also contain provisions concerning attorneys’ fees and enforcement costs that significantly increase the amount at stake. 

For a business owner, the best time to understand that exposure is before signing. If the business is already in default, the next best time is before acknowledging the debt, negotiating a personal payment plan, or signing additional documents.