Agreeing to become a guarantor under a lease should always be very carefully considered. It is an onerous undertaking, you may, for example, be obligated to continue payments for the full term of the lease, whatever the circumstances, ending up paying off all of the liabilities for the tenant.
A guarantor is a person who pledges or agrees to be responsible for another’s debt or contractual performance if that other person does not pay or perform.
This is a right of the guarantor to require that recourse be had to the assets of any other person before any claim is enforced against such Guarantor in respect of the obligations assumed by such Guarantor. In general terms, you will find that if you enter into a guarantee you will be required to contractually agree to waive this right.
This is a right of the guarantor to require that any liability under any guarantee or indemnity given be divided or apportioned with any other person or reduced in any manner. In general terms you will find that if you enter into a guarantee you will be required to contractually agree to waive this right.
The question of what exactly a guarantor is liable for under the terms of a commercial lease will depend on the drafting and specific wording of the guarantee, and whether or not its terms are enforceable.
There may be a limit on the guarantee, or else a break clause in the lease enabling the tenant to terminate the agreement early.
Even if the guarantee is enforceable, the tenant may have a right to sublet the lease, or otherwise assign the lease to a new tenant.
As discussed above entering into a guarantee is onerous and may have severe implications for you should the tenant’s business and they are unable to meet their liabilities under the lease.
Whatever the case it is important to take legal advice.
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The information and opinion expressed in this briefing does not purport to be definitive or comprehensive and are not intended to provide professional advice. For specific advice, please contact Parslows, We are not responsible for, and do not accept any responsibility or liability in connection with, the content of this document or any reliance upon it