When a smaller Jersey business takes on a property the landlord will often ask for a third party to guarantee the obligations under the business lease.
Most landlords will ask for this guarantee if the company is relatively new, with little trading history, or in a high risk industry. The directors of the company will be asked to personally guarantee the lease. This means that the directors are personally liable for the rent if the company can’t pay.
Agreeing to become a guarantor under a Jersey 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. Whatever the case it is important to take Jersey legal advice before signing a guarantee.
So what actually is a guarantor?
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.
What is the meaning of a droit de discussion in a Jersey guarantee?
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.
What is the meaning of droit de division in a Jersey guarantee?
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.
When can a guarantor be liable for under a Jersey commercial lease?
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.
What are the risks of signing a guarantee?
By signing a guarantee the guarantor will be putting their personal assets at risk, including, for instance, their family home. If the tenant company goes insolvent and cannot comply with the Lease obligations this could also force the guarantor into personal bankruptcy.