Member of BTG Global Advisory

Given the complexity of many commercial leases, it is vital that you understand your rights when it comes to signing a personal guarantee for a lease. The ramifications of failing to meet lease repayments are serious, but knowing the consequences to you personally if your business starts to struggle financially, could help to protect your home and other assets.

Business landlords generally request a personal guarantee from directors because of the extended nature of a commercial lease. Their wish to protect themselves from a tenant’s insolvency is understandable, particularly when repayments are made over a period of years rather than months.

Can you end a lease early?

There are various reasons why you might want to end your lease early - perhaps you need to move to larger premises, or negotiate better terms on the existing lease?

Here are a few options that might be open to you in these instances:

  • Break clause
    A break clause needs to be agreed prior to signing, and is part of the legal contract. It means that you can terminate the lease at a stated time, for example at the end of year three in a five-year contract. You will need to give written notice to your landlord of the intention to end the lease early, but if terms have been broken or you have missed a payment, the landlord may have the right to refuse you an early exit.
  • Surrender
    You may be able to negotiate your own exit terms by offering the landlord a deal. There is no guarantee that it will be accepted, however, and it might be a costly process.
  • Assign the lease
    This involves finding a new tenant to take over your lease. The landlord will want to impose restrictions and make sure of their suitability. You retain some liabilities to your landlord, and may need to guarantee the new tenant’s rental payments.
  • Sub-let
    If terms allow, sub-letting the property to another business might be an option. Your company will still be liable to the landlord, but the situation could be made financially viable with the payments coming in from the new tenant.

You will need to check the terms of your lease to see if any or all of the above are possible options. If not, it is likely that you are locked in to your contract for the full term, and if you have also signed a personal guarantee, this makes the situation more complex.

What if a personal guarantee is in place?

At the time when you provide a personal guarantee, it is crucial to have the associated lease document checked by a legal expert. Some commercial leases include terms allowing for future variations, without having to consult you for approval as the guarantor.

This has the potential to make you liable for new terms of which you have no knowledge, and with no requirement on the landlord’s part to inform you. If you fall behind with rental payments on your business premises, and the landlord is calling upon the personal guarantee you provided, the ramifications for your personal finances are serious.

You could lose your home or the asset secured on the lease, or be forced into personal bankruptcy alongside company insolvency. A potentially bleak picture emerges, even if you have taken out personal guarantee insurance, as this only covers a proportion of the amount that would become due.

Attempting negotiations

You should seek professional help as soon as possible in these circumstances. A licensed insolvency practitioner can review your own position as well as that of the company, explaining all potential options.

The first course of action will generally be to negotiate with your landlord. On reflection, and with the interjection of an insolvency professional, they may decide that reduced payments are preferable to an empty property in the long-term.

Begbies Traynor provides independent advice and guidance, and is the UK’s leading company rescue and recovery practice. We can identify any issues before you sign a commercial lease, and advise on mitigating your risks if you are required to provide a personal guarantee.

Contact our team

Processing...
Latest News
York taxi company placed into administration
York taxi company placed into administration
On 25th November 2016, Rob Sadler and Dave Broadbent of Begbies Traynor in York were appointed as joint administrators of Six Five Nine Cars Ltd. The business, which has traded in York for over 15 yea…
40 jobs saved as gaming retailer sold out of administration
40 jobs saved as gaming retailer sold out of administration
Administrators of a South West-based gaming retailer have succeeded in saving 40 jobs at the company after securing the sale of the business, including 12 out of 15 of its High Street stores. Business…
Nearly 100 jobs saved as bars and restaurants are sold out of administration
Nearly 100 jobs saved as bars and restaurants are sold out of administration
Almost 100 jobs have been saved by the successful sale out of administration of a number of Midlands bars and restaurants. Town and Country Inns plc appointed business recovery and rescue specialists …
Begbies Traynor opens new office in Taunton
Begbies Traynor opens new office in Taunton
The UK's leading independent business recovery practice, Begbies Traynor, has opened an office in Taunton.  The move will enable the firm to build on work it has already done in the town and with the…
Brexit uncertainty puts the brake on London businesses
Brexit uncertainty puts the brake on London businesses
New research reveals that British businesses from Land's End to John o' Groats have shown surprising resilience since the EU Referendum result was announced, with levels of financial distress falling…
UK businesses remain resilient in the face of Brexit
UK businesses remain resilient in the face of Brexit
UK businesses across nearly every sector of the economy were showing positive signs of stability following the EU Referendum, new research from Begbies Traynor, the UK’s leading independent insolven…

Advice You Can Trust

Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ACCA (the Association of Chartered Certified Accountants) ICAS | The Institute of Chartered Accountants of Scotland
Menu