Table of Contents
Entering a commercial lease in the UK is a significant commitment for you as a business owner. Rent payments will likely be one of your most significant business expenses. Moreover, if the lease agreement has a long lease term, you are tied to the property for some time. A commercial lease is also a significant risk for a landlord as they allow your business use of their property with the promise you will pay rent and carry out your lease obligations. Therefore, a commercial landlord may require a tenant to find a guarantor to guarantee you in the commercial lease. This article will explain who can guarantee your commercial lease in the UK.
Commercial Lease
A commercial lease is where you occupy 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 particular obligations in the lease and 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 the lease end date;
- paying any service charge; 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 you, as the tenant, will adhere to your lease obligations in the lease agreement. They will usually do this from the date you enter the lease. Therefore, your guarantor must carry out your obligations if you do not adhere to them. 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) where you, as the tenant, seek to assign the lease to a third party. In this context, you, the original tenant, would guarantee the conduct of the new tenant under the AGA, and any original guarantors under your lease can continue to be guarantors.
A guarantor for your role in the commercial lease will provide your commercial landlord with, for example:
- reassurance that you will carry out your leasehold obligations; and
- the security they can rely on if you do not.
Call 0808 196 8584 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.
Who Can Be a Guarantor?
A guarantor can either be an individual or a company with capacity.
Company
A company with capacity means that the company 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 your role in your commercial lease, an individual guarantor promises to carry out your role in the lease where you fail to do so in a personal capacity. This means that they adopt personal liability for your lease obligations. Therefore, your commercial landlord will want to satisfy themselves that your individual guarantor has the means to do so.
An individual who acts as a guarantor in a commercial lease risks all their personal assets if you do not adhere to the commercial lease responsibilities. 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.
When you decide upon a guarantor to guarantee your commercial lease, you should get a solicitor to check the lease agreement so that your guarantor is not obligated to guarantee any later variations to the lease agreement without being consulted before the change.
Key Takeaways
When you enter a commercial lease or request permission to assign it to another person to be the tenant, you must provide a guarantor for your role in the commercial lease. A guarantor will guarantee that you will fulfil your obligations in the commercial lease agreement, so make a legal promise. Where you do not fulfil your legal obligations, they must do so. A guarantee can be an individual person or a company with capacity. A person will take personal liability for your role in the lease. A company will do so through the company must have the power to do so.
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
A commercial lease is where a business owner occupies a commercial property as the premises for their business in return for rent paid to the commercial landlord.
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.
We appreciate your feedback – your submission has been successfully received.
