Over 23,000 company insolvencies were recorded in England and Wales in 2024, according to the Insolvency Service. That figure, while slightly lower than the year before, still represents a huge number of businesses that couldn’t meet their financial commitments. For anyone renting commercial space, that statistic hits close to home because it directly explains why landlords are so keen on guarantees.
I’ve been writing about property and business finance for years, and the question of guarantees comes up more than almost anything else. Directors of small companies often assume their limited liability structure protects them personally. Then they sign a lease with a personal guarantee and discover the hard way that it doesn’t. The gap between what people think a guarantee means and what it actually does is where most of the trouble starts. Here’s what you actually need to know.
If you’re a small business owner looking at commercial space, you need to understand how guarantees work before you sign anything. The essential guide to renting commercial spaces covers the basics, but the guarantee is where the real risk lives. A tenant landlord lawyer can review the specific wording before you commit, which is money well spent.
What a company guarantee actually means for your business
The most important thing to understand is that a guarantee is a legally binding promise. Under English property law, it must be in writing and signed by the guarantor or an authorised representative. If your business is the tenant, a company guarantee means another company — often a parent company or a connected entity — promises to step in if you can’t meet your lease obligations.
What I tend to notice is that directors of small companies often think a company guarantee is the same as no guarantee at all. It isn’t. The company that signs as guarantor takes on real liability. If your business has a parent company with assets, those assets are on the line. If you’re the director of both companies, you’re effectively guaranteeing your own lease through a different legal entity. It’s still a serious commitment.
A guarantee is not the same as a rent deposit. A rent deposit is a pot of money the landlord holds. A guarantee is a promise that can be enforced against the guarantor’s assets. Both can exist in the same deal, but the risk profile is very different. If you’re negotiating, understanding this distinction matters. The guide to winning commercial rent concessions covers how to approach these negotiations.
Why landlords ask for guarantees and what it means for you
Landlords ask for guarantees when they’re not comfortable with the tenant’s ability to perform over the lease term. This is especially common if you’re a new company with little trading history, your business has limited assets or low cash reserves, or you’re taking a long lease of five to ten years. Sectors like hospitality and retail are often seen as higher risk, which means landlords are more likely to ask for a guarantee.
Here’s a scenario that comes up a lot. A new café owner sets up a limited company, finds a great high-street location, and signs a ten-year lease. The landlord asks for a personal guarantee from the director. The director signs, thinking the limited company structure protects them. Eighteen months later, foot traffic drops, the business can’t pay the rent, and the landlord comes after the director’s personal savings and home. That’s not a hypothetical — it happens regularly.
Around 3% of landlords formally pursued guarantors for unpaid rent in the two years to 2024, according to the English Private Landlord Survey. That number sounds small, but it means thousands of guarantors were chased. And the threat of enforcement is often enough to make guarantees function as a deterrent. Landlords know that if you’ve signed a personal guarantee, you’re far less likely to walk away from the lease.
If you’re in a higher-risk sector or a new business, you might be able to negotiate alternatives. A rent deposit, a shorter lease term with a break clause, or a company guarantee from a connected entity can all work. I’d always explore those options before agreeing to a personal guarantee. The guide for small businesses renting commercial space has more on what to look for.
Where businesses get caught out by guarantee clauses
The most common mistakes I see aren’t about whether to sign a guarantee — they’re about what the guarantee actually covers. The wording matters far more than most people realise.
Assuming the guarantee only covers rent
Many guarantees extend to all tenant covenants in the lease. That can include keeping the premises in repair, reinstating alterations at the end of the term, complying with use restrictions, and paying service charges, insurance contributions, and VAT. If you think you’re only guaranteeing the rent, you’re missing the bigger picture. A tenant landlord lawyer can review the lease wording to clarify exactly what’s covered.
Not understanding how lease changes affect the guarantee
If the lease changes — through a rent increase, renewal, variation to the premises, or assignment to a buyer — the guarantor’s liability can be affected. Some clauses are drafted so the guarantee continues or tracks certain changes. Others require the guarantor’s fresh consent or a new guarantee. If you don’t check this upfront, you could find yourself liable for terms you never agreed to.
Signing a personal guarantee without exploring alternatives first
Directors often sign personal guarantees because they don’t realise there are other options. A rent deposit, a shorter lease term, a break clause, or a company guarantee from a group structure can all work. A bank guarantee or other security might also be possible. The key is to negotiate these before you sign, not after.
Ignoring execution formalities
Guarantees are often included in the lease itself or in a separate deed. Deeds have specific signing requirements. If execution isn’t handled properly, you can end up with an argument about enforceability. That’s a mess nobody wants. Make sure the guarantee is signed correctly by an authorised representative.
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| Guarantee Type | Who Is Liable | Key Risk |
|---|---|---|
| Personal (unlimited) | Individual director or owner | All personal assets exposed, no cap |
| Personal (limited) | Individual director or owner | Liability capped at a fixed sum or period |
| Company guarantee | Parent or connected company | Liability limited to that company’s assets |
| Time-limited guarantee | Individual or company | Expires after conditions are met (e.g. timely payments) |
What I’d do in your position is get the guarantee wording reviewed by a professional before signing. The cost of a lawyer is small compared to the potential liability. A business lawyer can help you understand exactly what you’re agreeing to.
How to negotiate a better guarantee and protect yourself
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If you’re facing a guarantee clause, you’re not stuck with whatever the landlord first proposes. There are several practical steps you can take to reduce your risk.
Limit what the guarantee covers
You can negotiate to cap the guarantee. A limited guarantee might cover only six months’ rent rather than the full lease term. Or it might exclude certain costs like dilapidations or legal fees. The more specific you can make the limit, the better. If the landlord pushes back, you can offer a higher rent deposit in exchange for a narrower guarantee.
Build in a time limit or review point
A time-limited guarantee expires after certain conditions are met — for example, after two years of timely rent payments. This gives you an incentive to perform well and a clear path to removing the guarantee. Not all landlords will agree, but it’s worth asking. If they say no, you can propose a review point where the guarantee is reassessed based on your payment history.
Clarify what happens if you assign the lease
If you sell the business or assign the lease to someone else, does the guarantee continue? Some clauses are drafted so the guarantee tracks the lease to the new tenant. Others release the original guarantor. You want the second option. Make sure the lease says the guarantee ends when the lease is assigned with the landlord’s consent.
Avoid “all variations” language
Some guarantee clauses say the guarantor remains liable even if the lease is varied. That means the landlord could increase the rent or change the terms, and you’d still be on the hook. Push for language that requires your consent to any variation that affects the guarantee. If the landlord won’t budge, at least make sure you’re notified of any changes.
- 1Get the guarantee wording reviewedHave a tenant landlord lawyer or business lawyer read the guarantee clause before you sign. They’ll spot risks you might miss, like “all variations” language or missing execution formalities.
- 2Negotiate the scope and durationAsk for a limited or time-limited guarantee. Propose a cap on liability, a review point, or a condition that triggers release. Be ready to offer a higher rent deposit as a trade-off.
- 3Check what happens on assignment or variationMake sure the guarantee ends if you assign the lease. Push for language that requires your consent to any variation affecting the guarantee. Get it in writing.
- 4Consider alternatives to a personal guaranteeExplore a rent deposit, shorter lease term, break clause, company guarantee, or bank guarantee. Each has different risk and cost implications. Choose the one that fits your situation.
If you’re a director asked to guarantee personally, review the company’s assets first. A company guarantee limits liability to company assets. A personal guarantee exposes your home and savings. The difference is enormous. Get separate legal advice before signing any personal guarantee. A property lawyer can walk you through the implications.
Frequently asked questions about company guarantees
Can a landlord pursue the guarantor without first chasing the tenant? ▾
What happens if the guarantor company becomes insolvent? ▾
Is a company guarantee better than a personal guarantee? ▾
Can I negotiate a guarantee out of the lease entirely? ▾
What does “indemnity” language mean in a guarantee clause? ▾
If this was useful, you might also want to read The Empty High Street: What Innovative UK Projects Can Save Our Towns?.
Sources and Further Reading
The Future of UK Retail: Reimagining Commercial Spaces for a New Era — Explores how changing retail patterns affect commercial leases and what tenants should watch for.
Commercial Lease Guarantors in the UK: What Businesses Need to Know. Sprintlaw, 2025.
Guarantee of a Commercial Lease: A Complete Guide. LegalVision, 2025.
Commercial Leases and Personal Guarantees. BusinessRescue, 2025.
