Commercial Lease Guarantor Agreements UK Guide

What this document is

A guarantor agreement is a separate contract sitting alongside a commercial lease, under which a named third party (the guarantor) promises to meet the tenant's lease obligations if the tenant fails to do so. In practice, this usually means paying rent, service charges, insurance contributions and dilapidations, but it can extend to any covenant under the lease, including carrying out repairs or reinstating alterations.

The agreement can be written into the lease itself or signed as a standalone deed. Either way, it creates a direct liability between the guarantor and the landlord, which the landlord can call upon when the tenant defaults. Guarantors are commonly used where the tenant is a newly formed company, a subsidiary without significant assets, a sole trader, or a business without a trading history strong enough to satisfy the landlord's covenant checks.

The directors or parents of the tenant company are frequently asked to act as guarantor in a personal capacity, which carries real consequences worth understanding before signing.

How to use this document

1. Check who is being asked to guarantee what. Before agreeing anything, identify whether the guarantor is an individual (often a company director acting personally) or a parent company. The implications differ significantly, particularly around personal assets, and a personal guarantor should get clarity on the full scope of what they are signing up to.
2. Review the scope of the obligations. Read the lease carefully alongside the guarantor clause. The guarantor is typically liable for everything the tenant is liable for, which includes rent, insurance rent, service charge, repair costs, and any damages flowing from breach. Make sure the obligations being guaranteed are clearly defined rather than open-ended.
3. Understand the duration. A guarantor's liability normally runs for the contractual term of the lease, but it can extend further in some cases, for example where the lease is assigned and the outgoing tenant enters into an authorised guarantee agreement (AGA). Clarify when the liability ends, and whether any holdover period is covered.
4. Negotiate a cap or release mechanism. Where possible, try to negotiate a financial cap on liability, a time limit, or a release trigger (such as the tenant reaching a certain level of trading history or net assets). Landlords will not always agree, but it is worth raising, particularly for longer leases.
5. Sign as a deed where required. Guarantor agreements are commonly executed as deeds to remove any question over consideration and to extend the limitation period for claims. Make sure the execution formalities are followed properly, with witnesses where needed, so the document is enforceable.

Common questions