Pitfalls for a person acting as a Guarantor to a commercial lease

If you are asked to be a guarantor for a commercial lease – perhaps in your capacity as director of a company or to support a family member, there can be significant financial and legal implications. Here are some potential pitfalls to consider:

1. Financial Liability: As a guarantor, you are personally liable for the obligations of the lease if the tenant defaults on payments or breaches the lease agreement.  Your personal assets are at risk. This means you may have to cover rent, damages, or other costs out of your own pocket.
2. Unforeseen Circumstances: If the tenant encounters financial difficulties, such as bankruptcy or insolvency, you may be required to fulfil the lease obligations even if it was unexpected.
3. Long-Term Commitment: Commercial leases often have lengthy terms, usually spanning several years. By acting as a guarantor, you are committing to potentially cover the lease obligations for the entire duration of the lease term.
4. Lack of Control: As a guarantor, you have no control over the actions of the tenant. If they fail to maintain the property or breach the lease terms in any way, you could be held responsible. Most modern leases will have a provision that the Guarantor’s liability is not be affected by a variation of the lease and this means the Guarantor would be obliged to accept terms that are not in the original lease and they may not know about.
5. Difficulty Terminating the Guarantee: Even if you want to be released from the guarantee before the end of the lease term, the Landlord is under no obligation to do so.  Even if they do agree, Landlords typically require a replacement guarantor or some other form of security before agreeing to release you from the guarantee.
6. Authorised Guarantee Agreement: If the Tenant assigns the lease to a third party, the Tenant in most cases, has to enter into an Authorised Guarantee Agreement (an ‘’AGA’’). This is an agreement requiring the Tenant to remain liable to the Landlord where the new incoming Tenant breaches the terms of the lease. This often means the Guarantor will also have to give a Guarantee which means that the Guarantor will be liable not only for the Tenant’s liability under the lease, but also the Tenant’s liability under the terms of the AGA.
7. Credit Implications: Defaulting on rent payments or being held liable as a guarantor could negatively impact your credit score and financial standing, making it harder for you to obtain loans or credit in the future.
8. Personal Assets at Risk: If you are unable to fulfil the obligations as a guarantor, your personal assets, such as savings, property, or investments, could be at risk of seizure to cover the outstanding debts.
9. Joint and Several Liability: if there are two Guarantors, it is important to note this does not mean that each of you are responsible for 50% of all liabilities. “joint and several liability” means the Landlord can demand money/rectification of breaches of the lease from both of you or one of you.  If you are unable to comply, you could be made bankrupt.

Before agreeing to act as a guarantor for a commercial lease, consider seeking legal advice to assess the risks so the lease can be reviewed and you understand your obligations and your level of liability if the Tenant does not comply with the terms of the lease.

The above does not constitute legal advice and is of a general nature.  Please call our New Enquiries team on 01634 728111 should you need to seek legal advice from the experts in our Commercial Property Department.