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How Do I Get a Personal-Guarantee Burn-Down Schedule?

KnowledgeHow Do I Get a Personal-Guarantee Burn-Down Schedule?
📖 2,272 words🗓️ Published Jun 23, 2026

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Direct Answer

The money move: never sign a full-term, unlimited personal guarantee — demand a burn-down that shrinks your personal liability to zero over 24–36 months of good payment. Landlords ask for a personal guarantee (PG) when your company lacks the credit history or balance sheet to stand on its own. Their default ask is a full-term guarantee: you are personally on the hook for every dollar of rent for the entire 7- or 10-year lease. On a 10,000 SF deal at $35/SF, that is $350,000 a year of personal exposure — your house, your savings, and your kids' college fund all riding on a lease that outlasts most businesses.

The fix is a burn-down (or "rolling") guarantee, where your personal liability declines on a fixed schedule as long as you pay on time. A strong burn-down caps exposure at 6–12 months of rent up front, then reduces by one-third or one-half each year, hitting $0 after 24–36 months. The landlord still gets real protection during the risky early years when most tenants fail; you stop betting your personal net worth on year seven of a deal you cannot predict. Ask for it at the LOI — it is a standard, well-understood structure, and landlords grant it routinely to tenants who push for it.

What a Personal Guarantee Actually Costs You

A full personal guarantee means the lease is no longer a corporate risk — it is your risk. If the business fails in year three, the landlord can sue you personally for the remaining four years of rent plus interest and costs. That is the entire purpose of the PG: it pierces the corporate veil that you formed an LLC to create in the first place. Many founders sign it without reading because the landlord frames it as routine, and only discover the exposure when the business stumbles.

Know the four common structures so you can name the one you want:

How a Burn-Down Schedule Works

A typical burn-down on a seven-year lease moves like this. In months 0–12, your liability is capped at 12 months' rent, roughly $350,000. At the start of year two, the cap drops to 8 months, about $233,000. By year three, it falls to 4 months, around $117,000. At the end of year three, it burns to $0 and you carry only corporate liability from that point forward.

The reduction is conditional on clean payment. Miss your rent or fall into default and the PG snaps back to the full cap. That is a fair trade — the landlord is being compensated for de-risking your early, fragile years, and you are being rewarded for proving you pay. The whole structure rewards the behavior both sides want.

How to Negotiate the Burn-Down

Strengthen Your Position Before You Ask

Landlords size the guarantee to the risk they perceive, so lower the risk and you lower the guarantee. Each of these levers gives the landlord comfort and gives you a shorter PG in return.

Red Flags to Strike

Before you sign, hunt down and remove these clauses, each of which quietly expands your personal exposure beyond what you agreed to:

flowchart TD A[Sign lease with burn-down PG] --> B["Year 0-1: full capunder br/over e.g. 12 months rent = 350K"] B --> C{Paid on time, no default?} C -->|Yes| D["Year 2: cap drops to 8 monthsunder br/over ~233K"] D --> E{Still clean?} E -->|Yes| F["Year 3: cap drops to 4 monthsunder br/over ~117K"] F --> G{Still clean?} G -->|Yes| H["Year 4+: PG burns to 0under br/over corporate liability only"] C -->|Default| I[PG resets to full cap] E -->|Default| I G -->|Default| I
flowchart LR A[LOI stage] --> B[Propose burn-down vs full PG] B --> C["Set starting cap: 6-12 months rent"] C --> D["Set reduction: 1/3 or 1/2 per year"] D --> E["Set burn-to-zero: month 24-36"] E --> F[Define default reset narrowly] F --> G[Add good-guy carve-out on early exit]

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What a Good Burn-Down Schedule Looks Like in Practice

A well-structured burn-down schedule isn't a single cliff — it's a series of small, predictable steps that reduce your personal exposure as your business proves its reliability. The most common structure is a three-phase burn-down:

For a 10-year, $350K/year lease, that means your personal risk goes from ~$3.5M (full term) down to roughly $175K in Year 2, then $70K in Year 3, and finally $0 by Year 4. Some landlords will push for a "tail" — a small residual guarantee (e.g., 6 months' rent) that never burns off — but you should aim to eliminate that entirely.

The key negotiating lever: tie each burn-down step to a clean payment record (no defaults, no late payments beyond a 10-day grace period). This gives the landlord a clear, objective trigger to reduce your exposure, not a vague "we'll review it later" promise.

How to Negotiate the Burn-Down Timeline

Landlords will initially resist a fast burn-down — they want maximum coverage for as long as possible. Your counter is to offer a shorter initial guarantee period in exchange for a faster burn. Here's the playbook:

  1. Start with a 12-month "hard" guarantee — you're personally liable for everything in Year 1. This gives the landlord comfort that you'll actually pay rent while your business stabilizes.
  2. Propose a 24-month burn-down after that: 50% in Year 2, 25% in Year 3, 0% by Year 4. Frame it as "I'll show you I'm good for it, then you let me off the hook."
  3. If they push back, offer a "step-down" instead — your guarantee drops by 10% every 6 months (e.g., 100% → 90% → 80% → 70%...). This is slower but still eliminates 100% exposure within 4–5 years.

The most common landlord counter is a "linear burn" — 10% per year for 10 years. That leaves you personally exposed for the entire lease term (just at a lower dollar amount). Reject this: it defeats the purpose of a burn-down. Instead, insist on a front-loaded reduction (50%+ gone in the first 3 years).

What Happens If You Miss a Payment During the Burn-Down

A critical detail most tenants overlook: what happens to the burn-down schedule if you're late on rent? Landlords will often include a "reinstatement" clause — if you miss a payment, the personal guarantee snaps back to 100% for the remaining lease term. This is a trap.

Negotiate for a cure period (typically 30 days) before any reinstatement kicks in, and make sure the burn-down only resets to the *current* level (not the original 100%). For example:

Also, define "default" narrowly: only uncured monetary defaults (missed rent after notice) should trigger reinstatement, not technical defaults like a late financial statement. This protects you from losing your burn-down progress over minor paperwork issues.

FAQ

What exactly is a personal-guarantee burn-down schedule? It’s a clause that gradually reduces your personal liability on a commercial lease as your business makes on-time payments. Typically, the guarantee shrinks by a fixed percentage each month or quarter, reaching zero after 24 to 36 months of clean payment history.

How do I negotiate a burn-down schedule with a landlord? Start by asking for it during lease negotiations, not after signing. Frame it as a reward for consistent rent payment — most landlords will consider a 24- to 36-month burn-down if your business has solid financials or you offer a short initial guarantee period.

What’s a typical burn-down timeline? Common schedules range from 24 to 36 months, with liability decreasing in equal increments. For example, a 36-month schedule might reduce your guarantee by roughly 2.8% each month, hitting zero at the end. Shorter timelines are harder to get unless you have strong credit or a larger security deposit.

Can I get a burn-down if my company is a startup? Yes, but it’s tougher — landlords may require a shorter burn-down (e.g., 18 to 24 months) or a higher security deposit. You might also need to show personal financial strength or a co-signer to start the negotiation.

What happens if I miss a payment during the burn-down? Most schedules pause or reset if you miss a payment. For instance, a 30-day late payment could freeze the burn-down until you catch up, and repeated misses might restart the clock. Always check the specific terms — some landlords allow a one-time grace period.

Is a burn-down schedule the same as a personal-guarantee release? No — a release ends your liability at a set date (e.g., after 24 months of payments), while a burn-down gradually reduces it over time. Burn-downs are more common because they give landlords ongoing protection if your business struggles early on.

Sources

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