Guarantors under a Lease – How long is the Guarantor bound for?
In commercial landlord and tenant transactions, the tenant may be asked to provide a guarantor for its obligations under its lease to strengthen its covenant and provide the landlord with additional security. But how long will the guarantor be liable to the landlord for the tenant’s obligations?
Typically the obligations will run for the duration of the Lease, unless
- the lease is lawfully assigned to a new tenant (i.e. provided that any restrictions on the assignment under the lease have been met). Then the guarantor will be released under its obligations under the Lease to the same extent as the tenant is released
- there has been a variation to the terms of the lease that are prejudicial to the guarantor (it is important in these cases for a landlord to obtain a guarantor’s consent before entering into the deed of variation, otherwise the guarantor may be released from its liability)
If the lease is a ‘protected lease’ under Landlord and Tenants Act of 1954 and the tenant’s hold is over, it is important to note that the guarantor’s liability will not automatically continue without specific drafting in what constitutes the lease term and how the guarantor is to remain liable to the landlord.
However, note that where the guarantor is guaranteeing the obligations of an undertenant, that the termination of the underlease will not release them as the benefit of its guarantee will pass automatically to the head landlord together with the reversion of the immediate landlord’s interest.
This can be a complex area of law and it would serve any prospective landlord well to be aware of the various pitfalls involved in using guarantors.
How we can help
Here at Gregg Latchams, we have experience in acting for landlords and tenants and our Commercial Property team can advise on any potential issues before you commit to enter into a lease.