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Do you REALLY understand what it means to be a guarantor?

What is a guarantor?
Anyone signing up to be a guarantor is essentially providing a form of insurance to the product provider such as a landlord/mortgage company or loan company. 

You are saying that you will make payments or carry out the obligations within the agreement should the person you have been a guarantor for fails to do so. Therefore the guarantor is potentially liable for someone else’s debt if payments are not made.

How liable am I?
If you have signed as a guarantor, you are legally bound to pay off the remainder of the loan, mortgage or rent if the borrower/tenant fails to pay it themselves. In rental property, the guarantors are also liable for any damage or cleaning and outstanding bills or any other tenancy related obligation – in effect they are agreeing to the obligations outlined in the tenancy agreement. In the case of some loans, the amounts will vary and the greater the loan, the greater your commitment as loans and mortgages will incur interest.

Can I be removed as guarantor?
Not really – but check your agreement! Some guarantor agreements contain a provision that allows termination after a certain period. If no termination provision exists, guarantors remain liable until the end of the contract.

What action can be taken against a guarantor?
If the borrower/tenant fails to make their contractual payments and carry out their obligations under their agreement, a County Court Judgment may be obtained against you (the guarantor). This means more costs and interest will have been added to the debt and the CCJ will stay on your credit file for 6 years. This also means enforcement action can be taken against you such as High Court Enforcement Officer knocking on your door, or an Attachment of Earnings Order where your employer is ordered to pay the Court direct from your wages. Worst case scenario, an Order for Sale may be applied for against your own property if you are a home owner.

Therefore it is crucial that you are aware of your obligations before signing as a guarantor.

CASE STUDY – Pub Companies

Often when you commit to a public house lease agreement with a pub company, as a limited company they will insist that you have a personal guarantor in place. Which means, if the limited company goes bust – the personal guarantor is liable for the debt. Leasing agreements are fixed for a period of time (often long term) so if the limited company collapses mid-way through the term, the guarantor is still liable for the finances until the lease agreement term has ended.

Our debt recovery team act for a number of pub companies and spend a large proportion of time pursuing personal guarantors for monies outstanding. The vast majority of these guarantors are completely unaware of the commitment they made when they signed as guarantor, but they are still liable to pay the monies owed.

If you would like advice or support relating to public house lease agreements, acting as guarantor and how to secure debt repayment from a guarantor, please contact laura.charles@elselaw.co.uk who will be happy to assist with your enquiry.