Your landlord wants a personal guarantee or a rent deposit before they grant the lease. Do you have to give one? No law says you must. But the landlord can refuse to grant the lease without it, so in practice it becomes part of the deal.
A personal guarantee on a commercial lease means you, as a person, promise to pay if your business does not. A rent deposit is money you hand over that the landlord can draw on if the rent goes unpaid. You can discuss both before you sign.
This guide is for owners of small businesses taking on or renewing a lease of a shop, cafe, salon, clinic or franchise unit. It covers leases in England and Wales.
In This Article
Key takeaways
- A personal guarantee puts your own money and assets at risk if your business cannot pay what the lease requires.
- A rent deposit is your money, held on terms set out in a separate document called a rent deposit deed.
- The amount, how long the security lasts and when it ends are points you can raise before you sign.
- When you sell the business and pass the lease to the buyer, your guarantee may end. You may still be asked to stand behind the buyer.
Read the guarantee and the deposit deed as closely as the lease itself.
Contents
- Why do landlords ask for a guarantee or a deposit?
- A personal guarantee makes you responsible for the lease.
- A rent deposit is your money, held on terms you need to read
- Personal guarantee or rent deposit: how they compare
- What can you negotiate before you sign?
- What happens to your guarantee or deposit when you sell the business?
- How Onyx Solicitors can help
- Questions people ask
Why do landlords ask for a guarantee or a deposit?
Most small businesses take a lease through a limited company. If the rent stops, the landlord can only chase the company. A new company may have little trading history and few assets of its own.
So the landlord looks for comfort elsewhere. That usually means a person who promises to pay, money held up front, or both. Asking for security is a normal part of letting business premises. It does not mean the landlord doubts you.
Say you are opening your first cafe through a company you set up last month. The company has no accounts yet. Expect the landlord or their agent to ask about a guarantee or a deposit early in the talks.
The useful question is what you are being asked to sign, and on what terms.
A personal guarantee makes you responsible for the lease
A personal guarantee is a promise you make to the landlord as an individual. If the tenant company does not pay or does not keep its promises in the lease, you step in.
Signing the lease as a director binds the company. Signing a guarantee binds you. If the guarantee is called on, the landlord can pursue you personally for what the guarantee covers.
What a guarantee can cover
It is easy to assume a guarantee only covers rent. Read yours closely. It may also cover the service charge, insurance rent, repairs, interest on late payments and the landlord’s costs.
Some guarantees say you are liable “as principal debtor”. That wording can let the landlord come to you without first chasing the company. Ask what that line means for you before you sign.
Questions to ask before you sign a guarantee
Is there a limit on how much you could have to pay?
Does the guarantee end on a set date, or does it last for the whole lease?
Does it carry on if the lease is renewed or extended?
Does it ask you to take on a new lease yourself if the company fails?
Each answer changes how much risk you are taking on. Write them down and compare them with what the landlord first proposed.
A rent deposit is your money, held on terms you need to read
A rent deposit is a sum you pay to the landlord at the start of the lease. The landlord holds it as security. The terms usually sit in a separate document called a rent deposit deed.
There is no fixed legal amount for a commercial rent deposit. The figure is agreed between you and the landlord. It may depend on the rent and on how strong your business looks on paper.
What to check in the rent deposit deed
Where the money is held, and whether it is kept apart from the landlord’s own money.
Who keeps any interest the money earns.
When the landlord can take money out, and whether they must tell you first.
Whether you must top the deposit back up, and how quickly.
When the deposit comes back to you, and what can be taken off first.
Say you run a small clinic and hand over a deposit when you move in. Two years later you pay one quarter’s rent late. The deed decides whether the landlord can dip into the deposit, and how fast you must refill it.
A deposit ties up cash your business could use elsewhere. Factor that into your plans before you agree the amount.
Personal guarantee or rent deposit: how they compare
Here is how the two usually differ for a small business tenant.
| Personal guarantee | Rent deposit | |
|---|---|---|
| What you give | A promise to pay if the business does not | A sum of money paid up front |
| Who is at risk | You, as a person, for what the guarantee covers | The deposit itself. The business still owes any shortfall |
| Effect on cash flow | No money paid at the start | Cash tied up for as long as the deed says |
| When it ends | When the guarantee says, or by law when the lease is passed on in some cases | When the deed says |
| Where the terms sit | In the lease or a separate deed | In a rent deposit deed |
Some landlords ask for both. If that happens, look at the total risk together, not each piece on its own.
What can you negotiate before you sign?
Security terms are usually agreed in the early stages of a lease deal. That is when you have the most room to ask for changes. After you sign, the landlord has little reason to agree to anything new.
These are points you can raise. Whether a landlord agrees depends on the premises, the rent and your business.
A limit on the guarantee
You can ask for a cap, so you are never liable for more than a set sum.
A time limit or a release
You can ask for the guarantee to end after a period, or once the business has paid the rent on time for a set length of time.
A smaller deposit, or one that reduces
You can ask for the deposit to come down, or be returned, once the business has a track record.
One form of security, not two
If the landlord wants a guarantee and a deposit, you can ask whether one would do.
We cover other terms worth negotiating in our guide to negotiating commercial lease terms that protect your business.
What happens to your guarantee or deposit when you sell the business?
It is easy to sign a guarantee without thinking about the day you sell. That day matters. If your business trades from rented premises, the buyer usually needs the lease passed to them. This is called assigning the lease.
Leases granted from 1 January 1996
Most leases granted on or after 1 January 1996 fall under the Landlord and Tenant (Covenants) Act 1995. When a tenant assigns the whole lease, the Act releases the tenant from its lease promises from that point. A guarantor of those promises is released to the same extent.
Authorised guarantee agreements
Sellers need to know one more rule. If the landlord’s consent is needed for the assignment, the landlord can make it a condition that the outgoing tenant guarantees the buyer. This is called an authorised guarantee agreement, often shortened to AGA.
An AGA can only cover the buyer, and only until the buyer is released in turn. Some landlords also ask the outgoing guarantor to back that agreement. Check whether your guarantee says anything about this before you sell.
Your deposit, and the buyer’s security
Check whether the deed returns your deposit when the lease passes to the buyer, and how soon. The landlord may ask the buyer for their own guarantee or deposit.
We explain the full assignment process in our guide to [what sellers need before completion.
Older leases and renewals
Leases granted before 1 January 1996 follow different rules. The original tenant and guarantor can stay liable after an assignment. If your lease is that old, get advice on where you stand before you sell.
A renewal usually means a new lease. The landlord may ask for fresh security, even if you have paid on time for years.
How Onyx Solicitors can help
Commercial leases are one of our main areas of work. We help business tenants understand what they are signing before they commit.
When we check a lease, we read the guarantee and any rent deposit deed alongside it. We explain in everyday language what each one asks of you, and what you could ask the landlord to change. You then decide with the full picture in front of you.
We help businesses, landlords and commercial tenants. We do not handle residential home purchases.
Questions people ask
Can I refuse to give a personal guarantee?
Yes, you can say no. The landlord can then refuse to grant the lease, or ask for other security. Some tenants offer a larger rent deposit, or a guarantee from a parent company, instead.
Does my personal guarantee end when I sell my business?
For most leases granted since 1 January 1996, a guarantor is released when the tenant is released on an assignment. The landlord may still ask the outgoing tenant to guarantee the buyer. Check your guarantee for any wording about backing that agreement.
Do I get my rent deposit back?
You get back what is left once the deed’s conditions are met. The landlord can usually take off unpaid sums the deed allows. The deed sets out when the money is returned.
Can the landlord use my deposit without telling me?
That depends on the deed. Look for whether the landlord must give notice first. Check too how long you have to top the deposit back up.
Will I need a guarantor if my business is new?
Landlords may ask a new business for some form of security. There is no fixed rule. A deposit, a guarantee or both may be on the table, and the terms can be discussed.
Does my guarantee cover a lease renewal?
It depends on the wording. A renewal is usually a new lease, so the landlord may ask for a new guarantee. Read any clause about renewals or extensions before you sign.
Does this apply to renting a house or flat?
No. This guide covers business premises only. Homes have their own separate rules, and we do not handle residential property matters.
Check your lease before signing
Has a landlord asked you for a personal guarantee or a rent deposit? Send us the lease and any guarantee or deposit deed before you sign. We will talk you through what you are agreeing to and what happens next.
Not ready to talk yet? Read The Commercial Lease Survival Guide for First-Time Tenants.
This guide is general information about the law in England and Wales as it stood on 29 October 2026. It is not advice on your own lease.