When signing a commercial lease in Queensland, one key consideration that often gets overlooked or misunderstood is the requirement to provide a personal guarantee. For many small business owners entering into a lease, being asked to become a personal guarantor is standard practice and tenants and landlords may both encounter this issue.

What is a Personal Guarantee?

A personal guarantee is a legally binding agreement where an individual — usually a company director or business owner — agrees to be personally liable for the lease obligations if the tenant (usually a company) defaults.

In simple terms, if the business cannot pay the rent, the landlord can chase the guarantor’s personal assets to recover the debt.

Most commercial leases will require a personal guarantee of the company directors in Queensland’s when a company is the tenant.

Why Landlords Ask for Personal Guarantees

Commercial tenancies can carry significant risk for landlords, especially with small or newly established businesses. If the tenant defaults and there’s no personal guarantee, the landlord may have no way to recover losses if the company has no assets.

A personal guarantee offers security, incentive, and recourse for a landlord. Landlords know someone with personal assets at stake stands behind the lease. Guarantors are more likely to ensure the business meets its obligations. If the business fails, the landlord can pursue the guarantor personally.

Risks for Tenants

As a tenant, being a personal guarantor can create risks that need to be considered carefully. The guarantor’s personal assets (e.g. home, savings) are at risk if the company defaults. Some guarantees remain in place even after the lease ends, particularly if it’s assigned to another tenant.

Many guarantees will hold individuals jointly and severally liable. This means that if there are multiple guarantors, each one could be held responsible for 100% of the debt — not just their share. If the guarantee is called upon, it could negatively affect the guarantor’s credit rating or financial future.

If you’re a tenant being asked to sign a personal guarantee, consider obtaining legal advice, or limiting the guarantee.

Some guarantees may be limited by a cap on the amount guaranteed, a time limit, or an exclusion for certain liabilities (e.g. damage not caused by the tenant). Oftentimes, offering a higher bank guarantee can assist in giving the landlord assurance under the lease, and allowing individuals to avoid being guarantors and risking their personal assets.

What should you do next?

Becoming a personal guarantor on a commercial lease is a serious commitment that can have long-term financial consequences. While it can be a necessary step in securing a tenancy, it’s not something to agree to lightly without legal and financial advice.

Both tenants and landlords should approach the issue with transparency, caution, and professional advice. For tenants, knowing the risks and negotiating where possible can protect personal finances. For landlords, personal guarantees can be an essential risk management tool — but should be used wisely and fairly.

Need legal advice about commercial leases or guarantees in Queensland? Contact our experienced team at FC Lawyers today.