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Property Guarantees and Indemnities

August 2021

The Covid-19 pandemic, and the resulting measures put in place by the government, has meant landlords have had limited options when a tenant fails to pay their rent. One option available to landlords is to enforce a guarantee (where one is in place). It is likely that landlords will continue to ask for guarantee agreements to seek greater protection.

The Deeds of Guarantee for the tenancy agreements have been reviewed and updated, to include an indemnity as well as a guarantee, so that landlords have the benefit of the extra security.  

The wording of the guarantor clause in the business leases has been tightened to make the guarantee and indemnity covenants more robust. 

A guarantee may become unenforceable if the tenant’s obligations are unenforceable and are void or set aside. Under a guarantee, the guarantor is only liable if the tenant is liable. An indemnity is a separate obligation to a guarantee. If the landlord suffers a loss the guarantor will compensate them for any loss or damage by making a money payment. With an indemnity, the landlord can pursue the guarantor as soon as there is a loss. 

Landlords are likely to require both a guarantee and an indemnity to ensure that they protect themselves from the risk of the tenant defaulting under the tenancy. 

Landlords need to be aware that a guarantor may be automatically released from its guarantee (but not the indemnity) if the lease is varied, unless the guarantor has consented to the variation. The safest course of action is to involve the guarantor in all transactions relating to the lease. 

Landlords also need to be aware that they cannot pursue a tenant for a debt caught by a breathing space moratorium during the time that a tenant is in a breathing space. This also applies to guarantors if they are in their own breathing space.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

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