Q: I am opening a café with a business partner and have been asked to act as a guarantor for the lease. Should I agree? A: The basic rule is never agree to anything until you fully understand your obligations under the agreement that you are signing. When you act as a guarantor, you are promising to act as a back-up for the person signing the lease agreement. If that person stops paying rent or breaks any other terms of the lease agreement, the landlord has the right to chase the guarantor for money owed, including fees and interest. Your obligations as a guarantor for that lease agreement will usually be contained in the deed of lease. You should check both documents, by signing the agreement to lease you are also committing to the deed of lease. I would expect that both you and your business partner signing the lease agreement with the landlord as guarantor. Co-guarantors have a right of contribution against each other, and a guarantor if called upon, has a right of subrogation against the principal, but these rights are not that useful if the business has failed and your co-guarantor is penniless. Can you insure against events that could cause business failure such as sickness or death of your business partner or business interruption? You should consider that if the business failed then what is the total liability you may have under the lease. This is the amount of lease and OPEX due for the remaining term of the lease.
If the business failed, where would the money come from to cover these costs? Do you have other capital or income available? You should ask your solicitor to look at the agreement to lease and deed of lease that you are signing, so they can fully explain the extent of your obligations under it and the consequences of being a guarantor. They may be able to suggest ways in which you can limit your liability or negotiate better terms with your prospective landlord. PN (MICHAEL HEMPHILL)
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