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When you enter into a commercial lease with a commercial tenant, you may request a guarantor for the lease. A guarantor provides security if prospective tenants fail to honour their lease obligations. You may, for example, ask a guarantor to guarantee these where you believe the commercial tenant’s business has limited assets or financial resources for the commercial lease.
However, despite your request for a guarantor for your lease, you could find yourself in a scenario where the guarantor does not pay the rent when your commercial tenant defaults. This article will explain what you can do if a guarantor does not pay the rent your tenant owes.
Commercial Lease
A commercial lease is when you, as a commercial landlord, allow a business owner to carry out their business on your property. Your property will act as their commercial premises, and you will permit specific business activity within it. In return, your commercial tenant will pay you rent.
Commercial lease terms are in a commercial lease agreement that both parties sign. The lease agreement will state the rights and obligations of both you as the landlord and your tenant, such as:
- rent details;
- lease term, which is the time your tenant commits to in the property;
- repair and maintenance obligations; and
- details such as any break clause.
Guarantor
A guarantor to a commercial lease acts as a guarantee for your commercial tenant failing to carry out their obligations under the lease. The guarantor guarantees your tenant’s obligations as they promise to perform them should your tenant fail to. Therefore, a guarantor will have to carry out any lease obligations the tenant has not carried out, which could be all or part of.
A guarantor can be a person who undertakes their role in a personal capacity or a business entity where the business guarantees your tenant’s responsibilities.
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Rent Debt
A critical role of a guarantor in a commercial lease is to pay your tenant’s unpaid rent payments where they fail to do so. Your commercial lease agreement will detail your rights to recover rent from the guarantor to the lease and how to go about it. You may need them to start a new lease, or you may be able to demand the outstanding rent from them.
Where your commercial lease allows you to demand outstanding rent from the guarantor, it may detail notice periods you should comply with to alert them to the rent debt. For example, if the guarantor is from an Authorised Guarantor Agreement (AGA), you can only ask them to pay the rent debt if you have given them notice by six months from the date it was due.
You can take several steps when the guarantor does not pay the due rent, as we will explore below.
1. Legal Proceedings
You may decide to start legal proceedings against either your commercial tenant or the guarantor of the commercial lease. Ultimately, this means taking one of them to court to ask the court to enforce that they pay the arrears on rent on the commercial lease.
2. Statutory Demand
Rather than take either your commercial tenant or the guarantor of the commercial lease to court, you may wish to serve a statutory demand on either party. This also forces either party to pay the rent owed on the commercial lease.
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3. Bankruptcy or Winding-Up Petition
A statutory demand is a precursor for starting a bankruptcy or winding up petition. You can take the latter route against your commercial tenant or commercial lease guarantor to force them to pay the outstanding rent.
Alternative Options
The above steps may not prove successful in payment of the rent debt, or you may not want to take these steps. If so, there are other ways you can try to recoup the rent debt for your commercial property. You should note that you are not obligated to take these alternatives. Therefore, if you choose not to, the commercial tenant and guarantor still have an obligation under the commercial lease to pay the rent arrears.
The options are as follows:
- use the rent deposit where one exists;
- try to take possession of your commercial tenant’s assets;
- forfeit the commercial lease and gain control of your property again;
- enforce any security you may have on the property;
- arrange a repayment plan for the rent debt with your commercial tenant or guarantor.
Key Takeaways
If your commercial tenant fails to pay their rent, which results in rent arrears, you may turn to the guarantor for your lease to pay. However, if your guarantor does not pay the rent your tenant owes, you need to be aware of what you can do. For example, you may take the guarantor or tenant to court to enforce payment. Alternatively, you may make a statutory demand or start a bankruptcy or winding-up order on either party. Where none of these options will work, there are other options you could take. You could arrange a repayment plan with either party or take the debt they owe you from any rent deposit.
If you need help understanding what to do as a commercial landlord when your guarantor does not pay the rent your tenant owes, 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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