Personal Guarantees In Commercial Leases: Risks For Directors

Article Summary

A director is not personally liable for a company tenant’s lease merely because they hold office or sign for the company. Personal liability usually arises because the director also signs a guarantee, an indemnity, or both.

Depending on the drafting, that liability may extend beyond unpaid rent to outgoings, interest, make-good costs, damages following termination and the landlord’s enforcement costs. Resignation, sale of the business, liquidation of the tenant or vacating the premises does not, by itself, release the guarantor.

Before signing, a director should identify the guaranteed obligations, distinguish the guarantee from any indemnity, check whether liability continues through variations, options, renewals and holding over, and negotiate a cap, expiry date or release mechanism where possible.