You’ve found your premises, decided to enter into a lease and want it in your company name.    Your future landlord is willing to enter into lease negotiations with you but you’re a start-up company with a limited trading history and financial record and he wants to ensure compliance with lease obligations and protect himself against a breach so, what happens next?

In such circumstances a landlord will more than likely want a third-party guarantee and often, where the company is limited, one or more of the company directors will be called upon to give it.

What is a guarantee?    It is a promise to ensure that a third party fulfils its obligations and/or a promise to fulfil those obligations if that third party fails to do so. It is a contractual agreement that creates a secondary obligation to support a primary obligation of one party to another.   In more simple terms, if a tenant fails to pay its rent under a lease, the guarantor undertakes to make those payments to the landlord instead of the tenant.

Can a guarantee be limited?   Yes, there may scope for negotiating a limit on the guarantee.  For example, if the lease were for five years then perhaps, provided the tenant complies fully with its lease obligations for one or two years, the guarantee may not need to apply to years three, four and five.   It may also be possible to exclude a family home from the guarantee.

Is a personal guarantee necessary?  After some thought you may find that the company is able to provide its own security such as offering a set rent deposit which in effect means the landlord has ‘money in hand’ which is accessible to him immediately in the event of default.