- Where the borrower is a corporation with no assets, the guarantee is the loan.
- Independent legal advice at signing is what most often makes a guarantee durable.
- The wording determines whether the lender must exhaust the security first.
- A guarantee generally survives assignment and can extend through renewals.
Why the guarantee is the loan
A private mortgage to a numbered company holding a single property is secured by that property and nothing else. If the property does not clear the debt, the corporate covenant is worth whatever the company has, which is usually nothing.
The personal guarantee from the principals is therefore not a formality on the file. It is frequently the only route to recovery of a shortfall.
That makes the half hour spent getting it signed properly the most valuable half hour in the transaction.
What defeats a guarantee
No independent legal advice. A guarantee signed by a spouse or a business partner without separate advice is the one most often attacked, on the basis that the signer did not understand what they were taking on.
Material change without consent. Where the underlying loan is varied in a way that increases the guarantor’s risk, without their agreement, the guarantee may be discharged.
Defective execution. Unwitnessed, undated, or signed by someone without authority.
Ambiguous scope. A guarantee that does not clearly cover renewals, or that is unclear about the amount, invites argument at exactly the point the lender needs certainty.
The terms that matter
Whether the guarantee is of the whole debt or capped at an amount.
Whether it extends to renewals, extensions and increases, or only to the original advance.
Whether the lender must proceed against the security first, or may sue the guarantor directly.
Whether the guarantor waives the defences a surety would otherwise have.
For guarantors, these are precisely the terms worth negotiating before signing rather than arguing about afterwards.
What guarantors should understand
A guarantee is a direct personal obligation. It is not a contingent gesture of support, and incorporation of the borrower does not soften it.
It generally survives the sale of the business or the property, and it can extend through renewals the guarantor was not asked about.
Anyone being asked to guarantee should obtain independent advice. That advice protects them, and it also protects the lender, which is the unusual case where both sides want the same thing.
Common questions
Can a lender sue the guarantor without selling the property first?
It depends on the wording. Many guarantees permit it; some require the security to be realised first.
Does a guarantee end when the mortgage is renewed?
Only if it says so. Many extend through renewals, which is a term worth reading before signing.
What is independent legal advice worth here?
It is the single factor most likely to make a guarantee enforceable, and the absence of it is the most common attack.
Can a guarantor limit their exposure?
Yes, by capping the amount, limiting the period, or excluding renewals. These are negotiable at the outset.
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