What a personal guarantee actually does on an Ontario commercial lease.

An Ontario business owner brings a signed lease offer to my desk on Monday and tells me the personal guarantee is 'just standard.' It usually is. The standard form is what makes the guarantee dangerous. The guarantee survives the closure of the company that signed it, the landlord can recover against the owner's home and savings if the company defaults, and most owners do not read the four words on page 23 that decide whether their personal liability has any cap at all.

DRG Law reviews commercial leases for Ontario owners before they sign. The five-clause article from earlier this week covered the lease as a whole. This article drills into the single clause that carries the most personal-or-financial weight: the personal guarantee. What it covers. What survives. What is negotiable. What to ask before signing.

What a personal guarantee covers.

A personal guarantee is a separate contract written into the lease. It names the owner (or owners) personally and confirms that the owner backs the company's obligations under the lease as a principal debtor, not a surety. The distinction matters: a principal debtor can be pursued directly without the landlord first chasing the company. The standard Ontario form gives the landlord that right.

The guarantee typically covers four obligation buckets:

• Rent. The base rent for the term of the lease.
• Additional rent. Realty taxes, common-area maintenance, utilities, insurance premiums, and any other amounts the lease defines as additional rent.
• Damages. Repair costs, restoration costs at lease end, and any damages to the premises caused by the tenant.
• Legal costs. The landlord's reasonable legal fees and disbursements to enforce the lease or the guarantee, often on a full-indemnity basis.

The owner's personal assets stand behind every dollar in those four buckets. The cap (if any) is set by the guarantee clause itself, not by the lease.

What survives, and for how long.

The standard Ontario commercial lease guarantee survives three events most owners do not anticipate.

The corporation closing.

Voluntary dissolution, involuntary strike-off under the Ontario Business Corporations Act, or bankruptcy of the corporate tenant does not release the guarantor. The landlord's claim against the owner personally continues against the personal estate.

Assignment of the lease.

When a tenant assigns the lease to a buyer of the business, the guarantee typically continues against the original guarantor unless the landlord signs a written release. A handshake release is not a release. A clause in the assignment agreement is not a release. Only a written instrument from the landlord, addressed to the guarantor by name, releases the guarantee.

The end of the initial term.

If the lease renews, automatically or by tenant option, the guarantee follows the lease into the renewal period unless the guarantee clause explicitly limits liability to the original term. Most standard forms do not.

An owner who signs a five-year lease guarantee with a five-year renewal option is potentially on the hook for ten years of rent obligations, plus the four buckets above, plus the survivor period after lease end for any damages or unpaid amounts.

What is negotiable.

Standard Ontario commercial lease guarantees run unlimited in amount, unlimited in time, and unconditional. All three are negotiable before signing. Three structural moves are worth pursuing on every lease review.

A dollar cap.

The guarantee is capped at a defined dollar amount, often expressed as a multiple of monthly rent (for example, twelve months of base rent). The landlord retains the corporation's full obligation; the owner's personal exposure is bounded. Caps of twelve to twenty-four months are common in negotiated Ontario commercial leases.

A burn-down.

The guarantee reduces over time as the tenant performs. A burn-down clause might step the guarantee from twelve months of rent to nine months at year two, six months at year three, and zero at year four. The landlord gets the security for the early-default risk window; the owner gets visibility on when the personal exposure ends.

A release condition.

The guarantee terminates on a defined event: the corporation reaching a stated revenue threshold, the tenant providing a letter of credit, or the lease being assigned to a buyer of equivalent or greater financial standing. Release conditions are the most landlord-resistant of the three but the most powerful when granted.

Two further moves help on the language layer. Limit the guarantee to monetary obligations only, so the owner is not personally liable for non-monetary breaches like signage or use violations. Confirm that the landlord must give the guarantor written notice of default and a cure period before enforcing against personal assets.

The four questions to ask before signing.

An Ontario owner reading a commercial lease guarantee clause should be able to answer four questions. If the guarantee clause does not answer them clearly, the clause needs rewriting before signing.

• What does the guarantee cover? Rent, additional rent, damages, legal costs, or some subset. Confirm which.
• How long does the guarantee last? Initial term only, all renewals, indefinite. Confirm and limit.
• Is there a dollar cap or a burn-down? Standard forms have neither. Negotiating one is the single highest-leverage move on the guarantee clause.
• What event releases the guarantee? Lease end is not automatic. Confirm what triggers the release in writing.

What this means before you sign.

The personal guarantee is the lease clause with the longest tail and the deepest reach. A signed guarantee that runs unlimited and unconditional puts the owner's house, savings, RRSP, and personal credit at risk for the full term, the full renewal, and the survivor period. Each of the three structural moves above, written into the guarantee clause before signing, contains that exposure.

I reviewed a lease last month where the owner had signed a personal guarantee on a five-year commercial lease for an Ontario restaurant. The business closed in year two. The landlord pursued the owner personally for the remaining three years of rent, the legal costs of enforcement, and the cost of restoring the premises. Nothing in the standard guarantee clause stopped the landlord. A burn-down at twenty-four months would have ended the exposure. The owner did not know to ask.

DRG Law reviews commercial leases with personal guarantees for Ontario business owners. Damaris Guimaraes reads every intake personally. Service in English or Portuguese.