When you’re starting or expanding a small business, securing the right location is often a top priority. Whether it’s a restaurant, retail store, or office space, signing a lease is part of the process. But how you structure that lease can make a big difference in protecting your personal assets.

The best approach is to have your LLC listed as the tenant on the lease. This way, the company — not you personally — is on the hook for rent and other obligations. Signing personally means you’re assuming direct liability, which defeats one of the main benefits of forming an LLC: shielding your personal assets from business creditors.

However, many landlords will still require a personal guarantee. This is a legal commitment that you (and possibly your business partners) will be personally responsible for the rent if the business can’t pay. While not every landlord insists on it, those who do are essentially removing the LLC’s liability protection for that specific debt.

Why does this matter? 

Because in many states, including Georgia, if you default on a lease, the landlord can demand all rent for the remainder of the lease term. For example, if you signed a 10-year lease and personally guaranteed it, you could be on the hook for the full balance — even if your business closes after a year. While landlords must try to “mitigate damages” by finding a new tenant, they can delay doing so, leaving you with a hefty bill.

Without a personal guarantee, the landlord’s claim is limited to your company. If the business has no assets, the landlord might receive little to nothing. But with a personal guarantee, they can pursue your personal bank accounts, property, and other assets — which could even lead to personal bankruptcy.

Negotiating a Middle Ground

If a landlord won’t remove the personal guarantee requirement, there are ways to limit the risk:

• Time-limited guarantee: You guarantee payments only for the first year or first few years of the lease. If all payments are made on time, the guarantee expires.

• Capped guarantee: You agree to guarantee rent only up to a set dollar amount, such as $50,000. This limits your exposure if things go wrong.

The bottom line:
Before signing a commercial lease — especially one with a personal guarantee — have an attorney review the terms. Understanding your obligations up front can protect you from devastating financial consequences if your business hits unexpected challenges.