When Can Commercial Landlords Pursue Lease Guarantors?

When you choose to lease your commercial property to a business owner, your commercial tenant promises to honour their lease obligations. This entails the risk that your commercial tenant may not fulfil their lease obligations, such as paying rent. Therefore, you may want a guarantor to guarantee your commercial tenant’s lease obligations. This article will explain some points that commercial landlords should consider before pursuing lease guarantors in a UK commercial lease. 

What is a Lease Guarantor?  

A guarantor for a commercial lease is a person or organisation who guarantees that a commercial tenant will fulfil their lease obligations. If the tenant defaults on their lease obligations, the guarantor must carry them out.

You may wish to insist on a guarantor for your commercial lease where your new tenant’s strength to perform their lease obligations is poor. This may be, for example, where they are a:

• small retailer;
• start-up business; or
• a business owner who has no previous history of commercial leases. 

When Can Commercial Landlords Pursue Lease Guarantors? 

As a commercial landlord, you may find that your commercial tenant fails to honour their lease obligations in your commercial lease. In this instance, you can likely pursue your guarantor upon considering the following points. 

1. Rent

One of the critical lease obligations your guarantor will guarantee for your commercial tenant is to ensure that they pay you rent. Where the tenant fails to do so, you should consider the tenant’s current financial position. This will indicate whether they can pay the outstanding rent. Where they may not be able to, you could spend time and money pursuing the tenant to gain little or nothing.

2. Notice Provisions

When your commercial tenant fails to uphold their lease obligations, you may be within your right to claim against your guarantor. However, you should consider any notice provisions first. 

Your lease agreement will likely contain notice provisions you must adhere to before you pursue your guarantor. If you do not comply with these, any claim against your guarantor may be invalid.

Where you have an authorised guarantee agreement, and you pursue unpaid rent, you must give the guarantor six months’ notice from the date the rent payment was due.

3. Assignment

Before pursuing the guarantor for your commercial lease, you must consider if the guarantor still legally guarantees your tenant’s lease obligations. This can be an issue where the tenant assigns the lease. 

The law states that where a tenant lawfully assigns a lease to another third party, they and the guarantor no longer have to fulfil the lease obligations. This applies unless a provision to the contrary exists. Therefore, in this instance, you could only pursue the guarantor if you have a provision to the contrary.

In reality, most leases do have a provision that states that where a tenant assigns the lease, they and their current guarantor have to guarantee that the new tenant abides by their lease obligations. Therefore, if your lease has such a provision, you can still pursue the guarantor. 

Cheat Sheet for Leasing Terms

This cheat sheet outlines what you should be aware of in your lease agreement.

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Key Takeaways

If your tenant fails to carry out the lease obligations, you might be able to pursue the guarantor to the lease without having to pursue your tenant first. However, before you do so, there are some points you may want to consider, including:

• your guarantor’s financial position; 
• whether you have given the guarantor appropriate notice; and
• whether the lease has been assigned. 

If you need help understanding what to consider before pursuing a guarantor, 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. So call us today on 0808 196 8584 or visit our membership page.