Personal Guaranties on Commercial Leases: Are You on the Hook?

Why landlords ask for a guaranty, and what it does

A commercial tenant is almost always an entity, and an entity with no assets cannot pay a judgment. The personal guaranty is the landlord's answer: the owner promises to pay what the tenant does not. Legally the guaranty is a separate contract between the landlord and the guarantor, so it is read on its own terms even though it refers to the lease. That separateness is the source of most disputes. The tenant's liability under the lease and the guarantor's liability under the guaranty can be different in amount, duration and defenses.

The guaranty must be in writing and signed

Business and Commerce Code § 26.01(b)(2) applies the statute of frauds to a promise by one person to answer for the debt, default or miscarriage of another. A guaranty that is not in writing, or not signed by the guarantor, is not enforceable. The writing does not have to be a separate document; a guaranty paragraph inside the lease signed by the owner individually can suffice. What does not suffice is a signature only in a representative capacity. An owner who signed the lease as president of the company has signed for the company, not for himself, unless the document makes the individual undertaking clear.

How Texas courts read a guaranty

Once the terms are ascertained, Texas applies the rule of strictissimi juris: the guarantor is entitled to have the agreement strictly construed, and it may not be extended by construction or implication beyond its precise terms. The Texas Supreme Court stated the rule in McKnight v. Virginia Mirror Co. (1971) and has applied it since. Where the language is ambiguous, the reading most favorable to the guarantor is adopted.

In practice that means the following questions are answered by the words on the page, not by what the landlord assumed:

• Scope. Does it cover rent only, or all obligations including CAM, repairs, indemnities and attorney's fees? Does it cover damages after termination or only rent while the lease is in effect?
• Cap. Is liability limited to a dollar amount or a number of months of rent? Does the cap shrink over time as the tenant performs (a burn-off), and has the burn-off been reached?
• Duration. Does the guaranty cover renewals and extensions, or only the initial term? Many guaranties say so expressly; silence favors the guarantor.
• Amendments. Does the guarantor consent in advance to future modifications, or must each change be approved?
• Assignment. Does the guaranty survive an assignment of the lease to a new tenant? Does it follow the landlord's sale of the building to a new owner?

The good-guy clause

Some leases carry a limited guaranty, often called a good-guy guaranty: the guarantor is liable for rent and other sums only through the date the tenant gives a specified notice, pays everything due, and surrenders the premises broom-clean. If the tenant does those things, the guarantor's liability stops even though the tenant remains liable for the rest of the term. These clauses are enforced as written, which means a tenant that surrenders late, leaves the space damaged, or skips the notice can forfeit the protection. A guarantor relying on such a clause should perform each step exactly and document it.

Defenses a guarantor can raise

Because a guaranty is a separate contract, a guarantor has defenses of its own in addition to any defense the tenant has to the underlying debt.

• Material alteration without consent. If the landlord and tenant changed the lease in a way that increases the guarantor's risk, for example by extending the term, raising the rent or expanding the space, without the guarantor's consent, the guarantor may be discharged. Most modern guaranties waive this defense by consenting in advance to any modification; whether yours does is a reading question.
• Statute of frauds. No signed writing, no guaranty.
• Expiration or burn-off. The guaranty ended by its terms before the default.
• Failure of a condition. Some guaranties require the landlord to give the guarantor notice of default or to first exhaust remedies against the tenant. If the guaranty says so and the landlord did not, the claim can fail.
• Payment and offset. The security deposit, rent received from a replacement tenant and other credits reduce what is owed. The landlord's duty under Property Code § 91.006 to mitigate after an abandonment reduces the tenant's debt, and therefore the guarantor's, because the guarantor owes only what the tenant owes.
• The tenant's defenses. If the tenant was not actually in default, or the landlord breached first, the guarantor can usually raise the same point.

How the landlord enforces it

The landlord may sue the guarantor together with the tenant or separately, and does not have to obtain a judgment against the tenant first unless the guaranty requires it. The suit is a breach of contract claim in county court at law or district court depending on the amount. A guaranty of a commercial lease is a debt, so the four-year limitations period in Civil Practice and Remedies Code § 16.004 applies, measured from the default the landlord sues on. Attorney's fees are recoverable if the guaranty or lease provides for them, and in many cases under Chapter 38 of the same code on a claim for breach of a written contract.

A judgment against a guarantor is a judgment against an individual, which opens personal assets to collection subject to Texas exemptions, including the homestead. That is why the demand letter to a guarantor usually produces a negotiation quickly. How a judgment creditor collects is covered in how to collect a judgment in Texas.

Example

Suppose a Dallas owner signed a guaranty in 2021 for her company's 36-month lease. The guaranty covers all amounts due under the Lease, is capped at six months of base rent, and says nothing about renewals. In 2024 the company and the landlord sign a renewal for 36 more months at higher rent; the owner is not asked to sign anything. In 2026 the company fails and owes nine months of rent at the higher rate. The landlord demands six months of the new rent from the owner. Read strictly, the guaranty covers the Lease as it existed in 2021; the renewal was a new agreement the guarantor never consented to and the guaranty did not say it covered extensions. The owner has a strong argument that she owes nothing for defaults under the renewal term. Had the guaranty said it covered all renewals, extensions and modifications, with or without notice to the guarantor, the answer would be reversed.

For owners asked to sign today

The time to control guaranty exposure is before signing. The points most often negotiated are a cap in months of rent, a burn-off as the tenant performs, a good-guy clause, a requirement that the landlord notify the guarantor of any default and give a short cure window, termination of the guaranty on an assignment to a creditworthy assignee, and an express statement that renewals and amendments require the guarantor's signature. None of these is unusual in Dallas-Fort Worth leases, and a landlord with a vacant space will often agree to several.

When to involve a litigator

For a guarantor, as soon as the landlord's demand arrives, and before any payment, because a partial payment can be argued as an acknowledgment of the full debt. For a landlord, before the demand goes out, so that the guaranty's notice conditions are met and the tenant's mitigation record is in order. The landlord's broader choices when a tenant defaults are set out in a landlord's options when a commercial tenant stops paying, and the tenant's exit options in whether a business can break its commercial lease. Tina Wysk represents guarantors and landlords in lease guaranty disputes in Dallas state courts; the firm's real estate litigation practice handles these claims from the first demand through judgment.