Securing a commercial lease is a major step in opening a franchise. To protect their investment, landlords often require a personal or business guarantee—essentially a promise that the lease will be honored, even if the business struggles.
There are various types of guarantees, which come with different levels of liability and landlord rights. Understanding the most common types of lease guarantees will help prospective franchisees make informed, confident decisions as they start their business journey.
8 Types of Lease Guarantees
#1 – Full or Absolute Guaranty
A full or absolute guaranty offers the strongest protection for the landlord but poses the highest risk to the guarantor—typically the franchisee. It makes the guarantor fully liable for all lease obligations, including rent, repairs, and compliance issues. Furthermore, the landlord can pursue the guarantor directly without first taking action against the tenant.
This type of guaranty carries significant financial exposure. Prospective franchisees should approach it with caution, and explore the possibility of negotiating more limited terms.
#2 – Limited Guaranty
A limited guaranty reduces risk for the guarantor by capping liability—either to a fixed dollar amount or only to monetary obligations like rent or fees. It may also require the landlord to exhaust remedies against the tenant before pursuing the guarantor.
This type of guarantee offers more protection for franchisees and is often a preferred option when negotiating lease terms. While landlords still gain some security, franchisees benefit from clearer boundaries and reduced personal financial exposure.
#3 – Good Guy Guaranty (GGG)
A Good Guy Guaranty protects the landlord while offering a fair exit path for the tenant. Under this arrangement, the guarantor is only responsible for obligations incurred while the tenant occupies the space. Once the premises are properly surrendered and the keys returned, the guaranty ends.
GGGs are popular in markets like New York and are designed to prevent tenants from walking away mid-lease. For franchisees, a GGG offers more flexibility and limits long-term liability—provided they vacate the space responsibly.
#4 – Personal Guaranty
A personal guaranty makes the franchisee (or another individual) personally liable for the lease. If the business defaults, the landlord can pursue the guarantor’s personal assets—including savings, property, or investments. Landlords often require personal guarantees from newer businesses or those with a weak financial standing.
While it can help secure a lease, it carries significant personal financial risk so franchisees should carefully weigh the implications and consider legal advice before signing.
#5 – Corporate Guaranty
A corporate guaranty shifts the liability from an individual to a business entity, typically the tenant’s parent company. In the event of a lease default, the landlord can only pursue the assets of the guarantor corporation—not personal assets. This arrangement is common for multi-unit operators or established businesses with strong financials.
For franchisees operating under a corporation or larger umbrella, this can be a less risky alternative to a personal guaranty, though still a serious financial commitment.
#6 – Bank Guaranty (Letter of Credit)
With a bank guaranty or letter of credit, a financial institution agrees to pay the landlord if the tenant defaults. This gives landlords added security and allows for quicker recovery—often without lengthy legal processes. It’s especially useful for tenants with less credit history or those from outside the country.
For franchisees, using a letter of credit may require locking up capital in a bank account, but it can be a way to avoid personal liability while satisfying lease requirements.
#7 – Joint and Several Guarantee
A joint and several guaranty involves multiple parties who are each fully responsible for the lease obligations. If one guarantor cannot pay, the landlord can pursue the others for the full amount. This type of agreement is common among business partners or multi-owner franchise groups.
While it offers strong protection for landlords, franchisees should understand the risk: even if another partner is at fault, each guarantor could be held liable for 100% of the lease obligations.
#8 – Declining Guarantee
A declining guarantee reduces the guarantor’s liability over time, typically as the business demonstrates financial stability or meets certain performance milestones. This type of guarantee is common in new developments or lease-up scenarios where initial risk is higher.
For franchisees, it offers a middle ground—providing the landlord with early protection while gradually reducing long-term exposure. It can be a useful negotiating point when discussing lease terms in emerging locations or unproven markets.
Things for Prospective Franchisees to Consider
Franchisors Usually Don’t Sign the Lease
In most franchise agreements, the franchisee is responsible for securing their own commercial lease. While the location may follow the franchisor’s specifications, the legal responsibility for the lease—including any guarantees—falls on the franchisee. As a result, it’s crucial for franchisees to carefully review the terms of the lease and understand the potential financial commitments before signing any agreement.
Franchisor May Offer Some Assistance—but Don’t Count On It
While franchisors typically won’t co-sign or guarantee your lease, many offer helpful support during the leasing process. Some franchisors may assist with negotiating lease terms, ensuring the space aligns with the brand’s specifications, or even helping secure preferred real estate partners or vendors. For stronger-performing franchisees, certain franchisors might provide a corporate guarantee. However, this support is not guaranteed across the board, and most franchisors will not take on direct responsibility for the lease. Therefore, it’s important for franchisees to understand that they are primarily responsible for their lease commitments.
Legal Review Is a Must
Before signing a lease or agreeing to any form of guarantee, it’s essential to consult with a real estate attorney who is experienced with franchise leases. They can help identify hidden liabilities that may not be immediately obvious. Common issues to watch for include:
- Clauses related to holdover rent (penalties for staying past your lease term)
- Uncapped repair obligations (where you could be responsible for unexpected, expensive repairs)
- Joint and several liability (where you could be liable for the full amount if other guarantors fail to pay)
A thorough legal review will ensure you’re fully aware of what you’re agreeing to.
Ready to Start a Franchise Location?
Guarantees are a standard part of commercial leasing. As a prospective franchisee, it’s crucial to be informed about the different types of guarantees and how they impact your business. By asking the right questions and negotiating smartly, you can ensure you’re not exposed to unnecessary risk.
If you’re ready to take the next step toward franchise ownership, FranNet is here to guide you. Our expert franchise consultants will assess your skills, interests, and goals to match you with the perfect franchise opportunity. We’ll support you throughout the entire process, answering all your questions along the way. Schedule your free consultation today!