Is it advisable to accept a tenant's request to waive a personal guaranty?

Full question:

I am having a conflict with a proposed tenant on a 5 year store lease. He wants to be relieved of personal guaranty anytime with 6 months notice and forfeiture of 2 months security. The property is in New York. Is this advisable?

• Category: Landlord Tenant
• Date: 04/07/2025
• State: Florida

Answer:

The situation you’re facing involves personal judgment based on the specific facts and circumstances. Landlords often require a personal guaranty from business owners, as it ensures that the guarantor (typically the business owner) will cover any lease payments the business fails to make. This arrangement allows the landlord to collect rent from either the business or the owner.

Including a personal guaranty in the lease can be beneficial for landlords, but it also poses risks for tenants. Some landlords may offer a 'good guy clause,' which allows a business to terminate the lease early without enforcing the personal guaranty, provided the business has vacated the premises and paid all rent up to that point. This clause can help business owners avoid personal bankruptcy, although the landlord may still require the business to fulfill rent obligations until the lease ends.

Tenants might also negotiate to replace the personal guaranty with a letter of credit, which is a financial institution's guarantee of payment to the landlord under specific conditions, such as non-payment of rent.

When considering this request, evaluate factors such as the financial strength of the company, whether the personal guaranty covers just the guarantor or also their assigns, and if the business is the owner’s sole source of income. If the business struggles financially, the owner may find it difficult to meet payment obligations, potentially leading to bankruptcy.

For specific legal advice tailored to your situation, consider consulting a real estate attorney familiar with New York law.