fbpx
HCR Law Events

9 July 2021

Personal guarantees – pitfalls and penalties

Personal guarantees can be a useful tool when negotiating amendments to an existing agreement or to offer an extra layer of reassurance to a beneficiary. However, they are often underestimated and signed without realising the consequences.

 

What is a personal guarantee?

A personal guarantee refers to an individual promise to fulfil the obligations of another party if they fail to do so. They are often used as a form of security for debts; for example, a company director gives a personal guarantee to take responsibility if the company fails to repay a debt.

Another common situation for a personal guarantee is in respect of a commercial landlord and tenant scenario where the tenant falls behind with rent arrears and wants to vary the payment terms of their lease by providing a personal guarantee.

 

Checklist to consider before signing a personal guarantee

Often, personal guarantees are made as gestures of goodwill to build confidence between parties in a contract or dispute situation. Several common pitfalls should be avoided to help minimise disputes, including:

  • Signing a personal guarantee and indemnity without taking independent legal advice
  • Not reading the full terms of the personal guarantee before signing
  • Not understanding the scope of the personal guarantee and indemnity, for example not realising that the personal guarantee is unlimited
  • Signing a personal guarantee under duress and without questioning the terms
  • Not realising the exposure to your personal assets caused by the personal guarantee.

 

What if I have already signed a personal guarantee?

Once a personal guarantee has been entered into and one party seeks to enforce the guarantee, there are several ways to challenge a guarantee, including:

  • Reviewing the personal guarantee to consider its validity
  • Evaluating the terms of the personal guarantee to determine if they are specific enough to be enforceable
  • Considering whether the terms of the personal guarantee have been varied, and whether any variation discharges the guarantee
  • Investigating whether the guarantee was signed under duress

Entering a personal guarantee in any capacity can be stressful, especially as the continuation of a business or agreement often depends on it. Individuals offering such gestures need to understand the scope of the personal guarantee and the circumstances in which they can be enforced.

Share this article on social media

About the Author
Claire Holford, Partner, and Acting Head of Defence & Security

view my profile email me

Want news direct to you?

sign up


In-House with You

show me more

Got a question?

Send us an email

x
Newsletter HCR featured image

Stay up to date

with our recent news

x
LOADING