How Lease Guarantees and Security Deposits Operate in Serious Tenant Defaults

When a commercial tenant in Maryland stops paying rent or breaches a lease in a serious way, a landlord’s real recovery options come down to two tools negotiated long before the default ever happens: the security deposit already on hand and any personal guaranty standing behind the tenant entity. How those two protections actually operate under Maryland law, and how sharply they differ from the residential rules many landlords assume apply, often determines whether a default costs a property owner a few months of rent or the better part of a lease term.

Maryland treats commercial and residential leases very differently once a tenant stops paying. The statutory caps, notice periods, and fixed deadlines that protect residential tenants largely fall away once the space is office, retail, warehouse, or industrial, replaced by whatever the landlord and tenant put in writing at signing. That makes the lease’s own language, not a state formula, the deciding factor in how much a landlord ultimately recovers.

What Happens to a Commercial Security Deposit When a Maryland Tenant Defaults?

Maryland sets no statutory cap on commercial security deposits and no fixed deadline for returning them after a default. A landlord applies the deposit to unpaid rent, property damage, or other breach-related costs strictly according to whatever the lease itself spells out, not a state-mandated formula.

For a commercial landlord, this is a double-edged advantage. Without a statutory ceiling, a landlord leasing space to a new or thinly capitalized tenant can negotiate a deposit sized to actually matter if things go wrong, rather than the token amount common in residential leasing. Market practice varies widely by tenant profile: an established, credit-worthy corporate tenant might negotiate a deposit as small as one month’s rent, while a startup with no operating history, or a tenant in a higher-risk use like a restaurant or bar, may be asked for three to six months’ rent or more, sometimes structured as a letter of credit rather than cash.

But the flip side of that flexibility is that Maryland statute won’t fill in the gaps if the lease is silent. A landlord holding a deposit on a retail suite in Anne Arundel County discovers this the hard way if the lease never specifies a return deadline, an interest-bearing account requirement, or exactly what counts as an offsettable loss: nothing in state law steps in automatically to supply those terms. A sophisticated tenant with negotiating leverage will often ask for the deposit to be held in a segregated account, with any accrued interest remaining the tenant’s property, but absent that specific lease language, a landlord is free to commingle the funds and keep any interest earned.

Is a Maryland Residential Security Deposit Governed by the Same Rules as a Commercial One?

No. Md. Code, Real Property § 8-203 caps a residential security deposit at roughly two months’ rent and imposes a 45-day return deadline after the tenancy ends, but that statute sits in the Real Property Article’s “Residential Leases” subtitle and does not reach commercial tenancies at all.

This distinction matters more than it might seem, and the residential statute is considerably more punishing than anything that applies to a commercial dispute. A residential landlord who withholds a deposit without a reasonable basis and misses the 45-day window can be liable for up to three times the amount wrongfully withheld, plus the tenant’s attorney’s fees, under the statute’s enhanced-damages provision. No equivalent penalty exists anywhere in Maryland’s commercial leasing law.

A landlord who mistakenly applies residential deposit rules, such as the 45-day return window or the threat of that treble-damages exposure, to a commercial lease is holding itself to a standard state law never imposed. Conversely, a commercial tenant who assumes the residential protections apply is likely to be disappointed when a dispute actually reaches the District Court. The correct starting point in any dispute is confirming which subtitle of the Real Property Article actually governs the tenancy at issue, since mixed-use buildings and ground-floor retail beneath residential units sometimes create genuine confusion about which rules apply to which space.

What Is a Lease Guaranty and When Does a Maryland Landlord Need One?

A lease guaranty is a separate written promise, typically signed by a business owner or a parent company, to personally cover a tenant entity’s rent obligations if that tenant defaults. Landlords typically require one from newly formed LLCs, startups, or businesses without an established credit or payment history.

Commercial tenants are almost always organized as an LLC or corporation specifically to shield the owner’s personal assets from business liabilities. That shield works well until a landlord asks the owner to personally guarantee the lease, at which point the protection the entity was formed to provide disappears with respect to that one obligation. A landlord leasing retail space in Prince George’s County to a first-time restaurant operator, for example, has little payment history to underwrite and will typically insist on a personal guaranty as a condition of signing.

Guaranties are not limited to individual owners. A landlord leasing to a franchisee or a single-location subsidiary of a larger business will often ask the parent company or franchisor to guarantee the lease instead of, or in addition to, an individual owner. In those situations, a landlord’s due diligence typically extends beyond the tenant entity’s own financials to the guarantor’s financial statements, since the guaranty is only as valuable as the guarantor’s actual ability to pay if called upon.

Does a Personal Guaranty on a Maryland Commercial Lease Have to Be in Writing?

Yes. Under Md. Code, Cts. & Jud. Proc. § 5-901, Maryland’s statute of frauds requires a signed writing for any promise to answer for the debt, default, or miscarriage of another person, and that requirement reaches lease guaranties directly.

An oral promise from a tenant’s owner to “personally make sure the rent gets paid” is not enforceable in a Maryland court, however sincerely it was made. Maryland courts have generally described a sufficient writing under the statute of frauds as one that identifies the guarantor by name, names the party the guaranty runs to, describes what is being guaranteed, and is signed by the person the landlord intends to hold liable. A guaranty scrawled on a sticky note attached to the lease can technically satisfy the writing requirement if it meets those elements, though no landlord should rely on anything so informal.

In practice, landlords also typically want the guaranty to state plainly that liability continues through any renewal or modification of the lease, since a guaranty limited to the original term can leave a landlord without recourse if a default happens after the lease was extended. This has been litigated before in Maryland, where guarantors have argued that a lease extension entered into without their knowledge released them from further liability. Because the outcome of that kind of dispute turns entirely on the guaranty’s own language, a landlord is far better served drafting for the renewal scenario up front than litigating it after the fact.

Can a Maryland Landlord Pursue the Guarantor Without First Suing the Tenant?

Generally yes, provided the guaranty itself says so. Most enforceable Maryland lease guaranties include language waiving the guarantor’s right to require the landlord to exhaust remedies against the tenant first, which allows the landlord to pursue the guarantor directly once a default occurs.

A guaranty is a separate contract from the lease, and Maryland courts generally enforce it according to its own terms. Whether a landlord can skip straight to the guarantor, rather than first obtaining a judgment against the defaulting tenant entity, depends entirely on how tightly that waiver language was drafted. A guaranty that is silent on the point invites exactly the kind of dispute a landlord does not want to be litigating in the middle of a vacancy.

Some Maryland commercial guaranties go a step further and include a confession-of-judgment clause, allowing a landlord to obtain a judgment against the guarantor without a full trial if a default occurs and specified conditions are met. Confessed judgments are governed procedurally by Maryland Rule 2-611, and Maryland courts have described them as disfavored, meaning a guarantor who is served with a confessed judgment retains the right to move to open, modify, or vacate it if a genuine, substantial defense exists. A landlord relying on this tool should expect that clause to be scrutinized closely if it is ever actually used.

What Legal Remedies Does a Maryland Commercial Landlord Have for a Serious Default?

A commercial landlord facing a serious default can pursue repossession through summary ejectment under Real Property § 8-401, a distress-for-rent action to recover unpaid rent directly, or a straightforward breach-of-lease damages suit, often combined with a separate claim against the guarantor.

These remedies are not mutually exclusive, and a landlord dealing with a serious default typically pursues more than one at once. The most common combination looks like this:

• Summary ejectment to regain possession of the space under Real Property § 8-401, filed in the District Court for the county where the property is located.
• A breach-of-lease damages action seeking unpaid rent, re-letting costs, and attorney’s fees where the lease allows them.
• A distress-for-rent action to reach the tenant’s property still on the premises, where the lease qualifies.
• A claim against the guarantor for whatever balance remains after the deposit and re-letting proceeds are applied.

Which combination makes sense depends heavily on the size of the claim and where the case belongs. A dispute large enough to exceed the District Court’s jurisdictional limits may need to proceed in the Circuit Court for the county where the lease was signed, such as the Circuit Court for Montgomery County, rather than the District Court that typically handles routine repossession filings. And because repossession and money damages involve different procedural tracks, a landlord who only files for summary ejectment without also pursuing the unpaid balance can end up with an empty space and no judgment for the rent that was actually lost.

Attorney’s fees are worth flagging separately, since Maryland courts generally will not award them to a prevailing landlord unless the lease itself specifically provides for fee-shifting in the event of a tenant default. A lease that is silent on attorney’s fees leaves a landlord bearing its own litigation costs even after winning, which is one more reason the default and remedies section of a commercial lease deserves the same drafting attention as the rent and use clauses.

Does a Maryland Landlord Have to Give a Commercial Tenant Notice Before Filing for Eviction?

Not necessarily. The Supreme Court of Maryland has confirmed, in a 2025 term decision, that the pre-suit notice requirement built into § 8-401(c)(1) applies only to residential tenancies, so a commercial landlord is not automatically bound by that same notice period unless the lease itself requires one.

Residential landlords must give a tenant written notice of intent to file and a chance to cure before a failure-to-pay-rent case can even be filed. Commercial landlords operate under no such statutory floor, which is a meaningful practical difference: a commercial default can move to a repossession filing far faster than a residential one, purely as a matter of statute.

That does not mean notice is irrelevant in practice. Most well-drafted commercial leases build in their own notice-and-cure period as a matter of contract even where Maryland statute does not require one, both because tenants negotiate for it and because a landlord who wants to preserve a business relationship, or avoid the cost and disruption of turning over a large commercial space, often prefers to give a struggling tenant a real chance to cure before filing. The practical lesson for a landlord is to read the lease’s own default provisions before filing anything, because the lease, not the residential statute, controls in a commercial tenancy.

Frequently Asked Questions

Can a landlord keep the entire security deposit if a Maryland commercial tenant defaults?

Potentially, yes, if the lease allows it and the deposit doesn’t exceed what’s owed for unpaid rent and damage. Because commercial deposits aren’t capped or governed by a statutory return formula, the lease’s own language controls exactly how much a landlord may retain and for what, and a landlord that retains more than the lease actually permits can still face a breach-of-contract claim from the tenant.

Does a guarantor remain liable if a Maryland commercial lease is later renewed or extended?

It depends entirely on how the guaranty is worded. A guaranty limited to the original lease term generally does not automatically extend to a later renewal, which is why landlords typically insist on continuing-liability language that expressly covers renewals, extensions, and modifications negotiated after the guaranty was originally signed.

Is there a legal cap on commercial security deposits in Maryland?

No. The statutory cap in Real Property § 8-203 applies only to residential leases. Maryland places no ceiling on how large a commercial security deposit can be, leaving the amount, and whether it is held as cash, a letter of credit, or another form of security, entirely to negotiation between landlord and tenant.

What happens to a personal guaranty if the tenant business is later sold to a new owner?

A guaranty generally continues to bind the original guarantor unless the lease and guaranty documents are formally amended or a release is negotiated as part of the sale. A new owner does not automatically replace the original guarantor’s obligations without the landlord’s agreement, which means a departing owner who forgets to negotiate a release can remain exposed for a business they no longer control.

Is a lease guarantor entitled to the same notice as the tenant before an eviction filing?

Maryland’s pre-suit notice requirement under § 8-401(c)(1) applies only to residential tenancies to begin with, so it doesn’t independently protect either a commercial tenant or its guarantor. Any notice rights a guarantor has typically come from the guaranty or lease itself, which is why a guarantor’s ability to find out about a default early often depends entirely on whether the lease requires the landlord to notify the guarantor directly.

Can a Maryland commercial tenant recover a wrongfully withheld security deposit years later?

Commercial deposit disputes generally fall under Maryland’s standard three-year limitations period for civil actions rather than the shorter window and enhanced-damages framework that applies to residential deposit claims, though the specific facts and lease language can affect when that period actually starts to run.