Personal Guarantees in Ontario Commercial Leases: What Small Business Owners Are Really Signing

You have incorporated your business precisely so that your personal assets stay separate from business liabilities. Then a landlord hands you a commercial lease with a personal guarantee attached — and suddenly the line between personal and corporate risk disappears. Personal guarantees in Ontario commercial leases are routine, but that does not mean you should sign them without understanding (and negotiating) their scope. For many small business owners, the guarantee is the most dangerous clause in the lease.

Why Landlords Ask for a Personal Guarantee

A commercial landlord leases to a corporation — often a newly incorporated company with little credit history, no assets beyond equipment, and no proven track record. From the landlord's perspective, that corporation offers thin security. A personal guarantee from the principal (you) provides a second layer of recovery if the business fails and the corporation cannot pay.

Guarantees are particularly common when:

• The tenant corporation is newly formed or has less than two to three years of operating history
• The lease is long (five or more years)
• The tenant improvement allowance is large
• The rent represents a significant commitment relative to the tenant's demonstrated revenue

What a Full (Unconditional) Personal Guarantee Means

An unconditional personal guarantee makes you personally liable for every obligation under the lease — base rent, Additional Rent, any costs arising from breach, and the landlord's legal fees. Key features to understand:

Joint and several liability: If there are co-guarantors (e.g., two business partners), the landlord can pursue either of you — or both — for the full amount owed. The landlord does not need to recover proportionate shares.

Independent of the corporation: The landlord can sue you personally without exhausting remedies against the corporation first. You cannot argue "try to collect from the company before coming after me" unless the guarantee explicitly requires this (called a "see-to" clause).

Survives assignment: If the tenant's lease is assigned to a new tenant, your guarantee may continue to cover the new tenant's obligations unless the guarantee is explicitly released. Always demand a release in writing on assignment.

Survives lease amendments: If the landlord and the new tenant later amend the lease (changing rent or terms), a poorly drafted guarantee can hold you liable for obligations you never agreed to. Include language limiting your exposure to the terms of the original lease only.

Negotiating Limits on the Personal Guarantee

A blanket, unlimited guarantee for the entire lease term is the starting position — not the only possible outcome. Ontario tenants negotiate personal guarantees all the time. Common limits include:

1. Dollar Cap

Limit the guarantee to a fixed dollar amount — often equal to one year's gross rent (base + estimated TMI). Beyond that amount, the landlord looks only to the corporation.

2. Time Burn-Down

Structure the guarantee so that the amount the guarantor is liable for decreases over time. For example, after two years of uninterrupted on-time payment, the guarantee reduces by a set percentage annually until it reaches zero.

3. Good Behaviour / Release Trigger

Include a provision that the guarantee is released entirely after the tenant has maintained continuous, uninterrupted occupancy and full payment for a defined period — often two to three years.

4. Scope Limitation

Limit the guarantee to base rent only, excluding Additional Rent, tenant improvement repayment obligations, and damages. This reduces the worst-case exposure significantly.

5. Single-Purpose / SPE Structure

Where the business has value, a corporate co-guarantor (a holding company with assets) is sometimes offered instead of a personal guarantee. Landlords may or may not accept this.

Spousal Consent and the Family Law Act

In Ontario, if you are married and the principal residence is in your name or jointly owned, the Family Law Act may give your spouse possessory rights to that home. This does not directly protect a personal guarantee, but a guarantor who owns property with a spouse should obtain independent legal advice about how the guarantee interacts with jointly held assets, since a judgment on a personal guarantee can lead to enforcement steps that affect the family home.

What Happens If You Default

If the business fails and the corporation defaults on the lease, the landlord will likely:

1. Send a demand letter to the corporation and then, separately, to the personal guarantor.
2. If unpaid, commence an action in Ontario Superior Court (or Small Claims Court, depending on the amount) against the guarantor personally.
3. If judgment is obtained, enforce against personal assets: bank accounts, investments, vehicles, and — with court process — real property.

The landlord may also apply lease-mitigation obligations — a duty to take reasonable steps to re-lease the space — which can reduce the ultimate amount owed. Landlords in Ontario have a duty to mitigate their damages on commercial lease defaults. The guarantee does not eliminate this duty.

Frequently asked questions