What Is a Guarantor on a Lease?
A lease is a contractual agreement for the rental of a certain piece of property. A guarantor on a lease is anybody who is obligated to make the rental payments. The extent of a guarantor's obligation on a lease can vary depending on the intent of the parties to the lease agreement and depending on state law. Some guarantors have unconditional obligations, while others have only limited obligations. Another common name for a guarantor is a co-signer.
General Principles
A guarantor is someone who agrees to make rent payments as required by the lease agreement. Accordingly, anybody who agrees with the landlord to make a lease payment can be considered a guarantor. Generally, a guarantor is any person who signs the lease agreement as a tenant, tenant guarantor or co-signer on the lease.
Personal Guarantees
It is common in the commercial leasing industry for the owners of businesses to sign personal guarantees on commercial lease agreements. This means that while the business entity is the principal tenant, or renter, under the lease agreement, the individual owner of the business is also a guarantor and must make the rent payments if the business entity cannot. Personal guarantees are often necessary for commercial lease agreements involving business entities that have little business credit history.
Guarantor of Collection
The most common type of guarantor under a lease agreement is a guarantor of collection. This means that the guarantor is only responsible for making rent payments if the landlord is first unable to collect the rent from the principal tenant. In other words, the landlord must attempt to collect rent from the tenant first, and only then can the landlord attempt to enforce the guarantee. A guarantor of collection, then, is not quite as obligated under the lease agreement as the principal tenant or as a co-signer.
Guarantor of Payment
A guarantor of payment is for all intents and purposes equivalent to a principal tenant or co-signer under the lease agreement. The landlord can demand payment from the guarantor of payment even if the landlord never demands payment from the other principal tenant. For example, if a business entity is the principal tenant, and an individual business owner provides a guarantee of payment, then the landlord can enforce the rental payment against the individual even if the landlord does not attempt to enforce the payment against the business first.
Significance
Lease guarantees become significant when the principal tenant defaults in paying rent. At that point, the landlord can sue the tenant and can also sue the guarantors. If the landlord is successful then the guarantor's personal assets can be exposed to the legal process. This means the landlord may be able to take the guarantor's personal wages or property in order to satisfy any unpaid rents due to the landlord.
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