Summary
- A commercial lease guarantor makes a legally binding promise to fulfil a tenant’s lease obligations if the tenant defaults, including paying rent shortfalls or taking over the lease.
- A guarantor can be an individual acting in a personal capacity or a company with sufficient capacity under its articles of association.
- Individual guarantors assume personal liability, which means their personal assets are at risk; company guarantors are liable only to the extent of the company’s assets.
- This guide explains who can guarantee a commercial lease for tenants operating businesses in the UK.
- LegalVision’s business lawyers specialise in advising clients on commercial lease guarantees and tenant obligations.
Tips for Businesses
Check whether your lease requires a replacement guarantor if the original becomes insolvent. If you are a director asked to guarantee personally, review the company’s assets first: a company guarantee limits liability to company assets. Get separate legal advice before signing any personal guarantee.
A commercial lease guarantor is a legal role in which an individual or company promises to fulfil a tenant’s obligations under a UK commercial lease. Under English property law, a guarantee is a secondary liability: it is only enforceable where it is in writing and signed by the guarantor or an authorised representative. Landlords most commonly request a guarantor from tenants with poor covenant strength, meaning the tenant lacks the financial standing to satisfy long-term lease obligations comfortably. A company acting as guarantor assumes liability to the extent of its assets; an individual guarantor assumes personal liability. This article will explain who can guarantee your commercial lease in the UK. This article will explain who can guarantee your commercial lease in the UK.
Commercial Lease
A commercial lease allows you to have exclusive possession of a property to conduct your business. You do so for a specific time, which is the lease term. In return, you pay your landlord rent and have specific obligations under the lease and corresponding rights. A commercial lease agreement will detail both parties’ rights and responsibilities in the commercial lease. As the tenant, your obligations can include the following:
- paying rent;
- complying with certain requirements (like repairs, decoration and reinstatement) at the lease end date;
- paying any other costs such as a service charge or insurance rent; and
- meeting your repair and maintenance responsibilities.
Guarantor
A guarantee is a legal promise. A guarantor to a tenant in a commercial lease is a person who guarantees that yA guarantee is a legal promise. A guarantor to a tenant in a commercial lease is a person who guarantees that the tenant will fulfil its obligations under the lease agreement. They will usually do this from the date you enter the lease, and until the lease terminates or is assigned to another tenant, or sometimes even after an assignment. Therefore, your guarantor must carry out the your obligations if you do not adhere to them, or they may be financially liable. This can include, for example, to:
- make up any shortfall in rent;
- pay for a default in the lease;
- be sued for damages; or
- take over your role in the commercial lease.
A commercial landlord may ask you to provide a guarantor when taking a new lease from them. A similar concept is an authorised guarantee agreement (AGA), which is used where the tenant wants to assign the lease to a third party. In this context, you would guarantee the conduct of the incoming tenant under the AGA, in addition to any original guarantors who remain as guarantors under the lease.
A guarantor provides a commercial landlord with:
- reassurance that tenant will carry out its lease obligations; and
- the security they can rely on if it does not.
Contractual Provisions
Often, your lease will also contain provisions that cover situations in which you would need a change of guarantor. For example, if your guarantor becomes bankrupt or insolvent, the landlord may require you to obtain a new guarantor. It is uncommon to have a lease that allows release of the guarantor from their responsibilities for specific reasons. Usually, guarantees are very stringent and difficult to avoid. Becoming a guarantor can be a material risk to that person, and they should carefully consider their financial liabilities if the tenant were to default on its obligations.
If you are moving out of your leased space and assigning the lease to another party, you are required to notify your landlord and obtain their consent. Use this free proforma template for this purpose.
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Who Can Be a Guarantor?
A guarantor can be either an individual or a company with the necessary capacity.
Company
A company with capacity means it has the power to act as a guarantor for your commercial lease. This derives from its memorandum or articles of association. Any company director offering a guarantee on behalf of a company should be able to demonstrate they do so to:
- promote their company’s success;
- promote your success; and
- that the company constitution has correctly approved it.
Individual
Unlike a company director who offers their company as a guarantor for the tenant, an individual guarantor promises to meet the obligations and/or liability of the tenant if it fails to do so in a personal capacity. This means that they adopt personal liability for the tenant’s lease obligations.
An individual who acts as a guarantor in a commercial lease risks losing all their personal assets if you fail to fulfil the commercial lease. In the context of a newly formed company tenant, this is often a guarantee from the directors of that business rather than a third-party individual or a shareholder. That individual should get legal advice on the guarantee separately to the tenant as it affects them personally.
Key Takeaways
When you enter a commercial lease or request permission to assign it to another person to be the tenant, you may be required to provide a guarantor for the tenant’s obligations in the commercial lease. A guarantor will guarantee that you fulfil your obligations in the commercial lease agreement, thus making a legal promise. Where the tenant does not fulfil their legal obligations, they must do so. A guarantor can be an individual person or a company with capacity.
If you need help understanding who can be your guarantor in a commercial lease in the UK, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
What are the alternatives to providing a guarantor for a commercial lease?
If you cannot provide a guarantor, you may offer a rent deposit deed, a charge over an asset, or ask additional parties to join the lease as co-tenants. Each option carries different risks and your landlord must agree to accept them in place of a guarantee.
When can a commercial landlord pursue a guarantor for unpaid rent?
A landlord can pursue a guarantor once a tenant breaches the lease, but must first comply with any notice provisions in the lease agreement. Where an authorised guarantee agreement applies, the landlord must give six months’ notice from the date the rent payment was due.
What is an authorised guarantee agreement?
An authorised guarantee agreement is a contract in which an outgoing tenant guarantees the performance of the incoming tenant following a lease assignment. It makes the outgoing tenant liable for any breach committed by the new tenant after the assignment takes effect. (
What is a guarantor for a commercial lease?
A guarantor for a commercial lease is a person or company with capacity that guarantees the commercial tenant will carry out their lease obligations and do so for them should they not.
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