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When you wish to enter a commercial lease in the UK as a new tenant, a landlord will assess your suitability as a tenant for the property. A commercial landlord’s property is their asset and business interest, so they must ensure they create a new lease they want to look after their interest. It is, therefore, commonplace for a landlord to request a guarantor for a tenant’s obligations when a tenant enters a commercial lease.
However, you may not be able to do this or wish to. Perhaps you have no one to ask or do not want to burden another with that responsibility. In that case, you may negotiate an alternative. This article will outline the other options for providing a guarantor for a commercial lease for a commercial tenant.
Commercial Lease Agreement
A commercial lease is when a property owner allows a business owner to use their property as commercial premises. This means that the business owner occupies the property or part of it, and you, as the retail tenant, pay rent in return.
A commercial landlord allows a tenant to occupy the property for a specific purpose, which will be their business activity. They can also prohibit certain activities on the business premises. These details and others concerning the lease are in the commercial lease agreement.
A commercial lease agreement is a legally binding contract between you and your commercial landlord. It will contain both your rights and obligations in the commercial lease, such as, for example:
- the amount of rent to pay;
- each party’s repair and maintenance obligations;
- any rent review clause; and
- alienation covenants.
Guarantor
A guarantor for a commercial lease can be a person you choose who is willing to take on the responsibility personally or a commercial entity such as a limited company. Either way, the role of a guarantor in a commercial lease is to guarantee you as a commercial tenant. A guarantor promises to fulfil your lease obligations if you cannot.
It is common for commercial landlords to ask for a guarantor for the commercial lease, so you may find your landlord requests it before you enter the lease and sign the lease agreement. They may do this to provide them with security and, therefore, reassurance should you not meet your lease obligations.
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Alternatives
When you enter into a lease agreement, and your commercial landlord requires you to provide a guarantor, you may wish to suggest alternatives.
Rent Deposit Deed Signed by the Tenant
A rent deposit may satisfy your commercial landlord as an alternative security to a guarantor. This is where you pay a sum of money to your landlord at the start of the lease. It can amount to as much as six months of your annual rent.
Your landlord can draw upon the deposit deed should you fail to meet particular lease obligations. Your landlord may like this suggestion as an alternative to a guarantor, as there are no formal routes to access the funds.
Tenant Charge
A further alternative to a guarantor, which you may suggest to your commercial landlord, is to offer them a charge over an asset you or a third party have, such as property. How your landlord pursues the charge will depend on the lease agreement and your strength of covenant, which is how they consider your ability to meet your lease obligations. Therefore, they could take a change in the same ways a bank does through a mortgage.
Additional Parties to the Tenant
Instead of offering a guarantor to your commercial lease, you could suggest that additional parties enter the lease as further commercial tenants.
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This means that your landlord has a third party or more to rely on to carry out your commercial tenant’s lease obligations. It also relieves you, as you can share the responsibilities in the commercial lease.
Key Takeaways
You may find yourself in a position where a potential commercial landlord asks you to provide a guarantor to enter a commercial lease. A guarantor is a person or commercial entity who guarantees they will fulfil any lease obligations you fail to carry out. If you cannot or do not wish to provide a guarantor, you could suggest alternatives to your landlord. For example, you may offer a rent deposit deed for your landlord to draw on should you fail to meet any lease obligations.
If you need help understanding alternatives to a guarantor for a commercial lease in the UK, LegalVision’s 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. Call us today on 0808 196 8584 or visit our membership page.
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