What Is a Personal Guarantee?
Contract by which a guarantor (typically company director/shareholder) agrees to discharge the obligations of a principal debtor (company tenant) if the principal defaults. Secondary liability — triggered only on tenant's default. Guarantee vs indemnity: guarantee is co-extensive with principal obligation (if tenant's obligation is void, guarantee falls too); indemnity is primary — independent liability even if principal obligation is void/unenforceable. Modern commercial documents include 'guarantee and indemnity' clause for widest coverage. Statute of Frauds 1677 s.4: guarantee must be in writing and signed by guarantor — oral guarantee unenforceable.
When to Require a PG
Company with short trading history (<2–3 years filed accounts); limited net assets relative to annual rent; newly incorporated SPV with no other assets; long-term lease (5+ years) or high rent relative to company income. Rent deposit alternative: 3–6 months' rent held on trust in designated account — immediate access to funds without litigation. Can be taken in addition to PG for maximum protection.
Key PG Terms
Scope: guarantee all lease obligations (rent, service charge, insurance, dilapidations) — not just base rent. Duration: co-extensive with lease including holding over and any LTA 1954 renewal term. Anti-Holme v Brunskill clause: prevents release of guarantor if landlord and tenant vary the lease without guarantor's consent. Principal debtor clause: removes defences based on secondary liability. Demand mechanism: written demand specifying breach required before landlord can sue on guarantee.
Authorised Guarantee Agreements (AGAs)
LT(C)A 1995 s.16: on assignment, landlord can require outgoing tenant to guarantee the immediate assignee's obligations as a condition of consent. Duration: ends when the immediate assignee assigns again. Cannot exceed tenant's obligations (LT(C)A 1995 s.16(4)). Guarantee of AGA: guarantor of original tenant may be required to guarantee tenant's AGA obligations. Outgoing tenant released from direct lease liability under LT(C)A 1995 but remains liable under AGA until further assignment.
Enforcing a PG
Written demand on guarantor specifying amount and basis of claim — send before litigating. County court (up to £100,000); High Court above £100,000. Guarantor defences: Statute of Frauds (not in writing); material variation without consent (if no anti-Holme clause); discharge of principal; defective demand. Limitation: LA 1980 s.5 — 6 years from date of demand (simple contract); 12 years if under seal (deed). Scotland: Requirements of Writing (Scotland) Act 1995 — guarantees must be in writing; Scots contract law governs.