Home Commercial Leases Personal Guarantees on Commercial Leases

 Personal guarantees are a common feature of lease agreements in New Zealand. They provide landlords with additional security by making the tenant's personal assets liable for any default in rent or other obligations under the lease. Personal guarantees are typically signed by the tenant's directors or owners, and they can have significant legal implications.

Here are some key legal considerations to keep in mind when dealing with personal guarantees in lease agreements.

Understanding the Scope of the Guarantee

Before signing a personal guarantee, it's important to understand the scope of the guarantee. This includes the amount of the guarantee, the duration of the guarantee, and the specific obligations covered by the guarantee. It's important to review the lease agreement carefully and seek legal advice if necessary to ensure that you understand the scope of the guarantee.

Legal Requirements for Guarantees

Personal guarantees must be signed voluntarily and with full knowledge of their implications. In New Zealand, the Contract and Commercial Law Act 2017 requires that guarantees be in writing and signed by the guarantor. The Act also requires that the guarantor receive a copy of the guarantee and the underlying lease agreement.

Enforcement of Guarantees

If the tenant defaults on the lease agreement, the landlord may seek to enforce the personal guarantee. This typically involves taking legal action against the guarantor to recover any outstanding rent or other amounts owed under the lease. It's important to be aware that personal guarantees can have significant financial implications and potentially put the guarantor's personal assets at risk.

Negotiating Guarantees

In some cases, landlords may be willing to negotiate the terms of personal guarantees. This could include limiting the amount of the guarantee, setting a fixed term for the guarantee, or excluding certain obligations from the guarantee. It's important to discuss these options with the landlord and seek legal advice to ensure that any negotiated terms are fair and reasonable.

Release of Guarantees

Personal guarantees may be released under certain circumstances, such as when the lease is assigned to a new tenant or when the tenant has fulfilled all obligations under the lease. It's important to review the lease agreement and seek legal advice to determine when and how a personal guarantee may be released.

 

Personal guarantees can have significant legal implications for tenants and guarantors in lease agreements. It's important to understand the scope of the guarantee, comply with legal requirements, and seek legal advice when negotiating or enforcing personal guarantees. By doing so, tenants and guarantors can protect their interests and avoid potential legal disputes.

Contact Mactodd Lawyers before signing a commercial lease to understand how a personal guarantee can affect you.

 

 

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