If you signed a personal guarantee for your company’s commercial lease, the landlord can usually pursue you personally once the company fails to pay rent or meet its other lease obligations, and in many guarantees without first suing the company. The guarantee normally survives the company being wound up or struck off and your resignation as director. What you owe depends on the guarantee’s exact wording: many cover rent, service charges, reinstatement costs and the landlord’s losses if the lease ends early. Read it before you negotiate an exit, a renewal or a transfer of the lease.
Why do landlords ask directors to guarantee a company lease?
A newly incorporated private limited company has limited liability and often few assets. A landlord letting a shop, office or warehouse to that company for several years is taking a credit risk. Many landlords therefore ask for a security deposit, a banker’s guarantee, a personal guarantee from one or more directors or shareholders, or a combination.
A personal guarantee is the one that puts your own assets at risk. Under section 6(b) of the Civil Law Act 1909, a promise to answer for another’s debt must be in writing and signed by the guarantor (or a note of it must be) before it can be enforced. In a lease, the guarantee is often a clause inside the tenancy agreement itself, or a separate deed signed at the same time. Directors sometimes sign it without noticing they are signing in a personal capacity as well as for the company.
Our general guide to personal guarantees in Singapore covers bank facilities. A lease guarantee raises different issues, because a lease is a long, changing relationship rather than a single loan.
What does a lease guarantee usually cover?
Every guarantee is different, but these are the obligations that commonly fall within it:
| Obligation | What it means for the guarantor | What to check |
|---|---|---|
| Rent and service charges | Unpaid monthly sums, often with late payment interest | Whether there is a cap, and whether GST and interest are included |
| Reinstatement | The cost of returning the premises to their original state at the end of the lease | Whether the deposit must be applied first |
| Early termination losses | The landlord’s loss if the company abandons the premises or the lease is terminated for breach | Whether the clause extends to losses after the lease ends |
| Indemnity | A separate promise to make good the landlord’s losses, which can survive even if the guarantee is challenged | Whether the clause says “indemnity” or “principal debtor” |
| Legal costs | The landlord’s costs of recovering the debt | Whether costs are limited to a reasonable amount |
When can the landlord come after you personally?
The trigger is set by the guarantee wording. The most common situations are:
- The company falls behind on rent. Many guarantees allow the landlord to demand payment from the guarantor as soon as the company defaults, without suing the company first.
- The company abandons the premises. If the company moves out before the lease ends and stops paying, the landlord may terminate the lease and claim its losses. The guarantor may be liable for those losses, depending on the wording. Where a landlord claims damages for the rest of the term, the general principle is that it should take reasonable steps to reduce its loss, for example by trying to re-let, but how that applies depends on the facts and the lease.
- The company is wound up. A landlord may start winding up proceedings over unpaid rent. The company’s winding up does not release the guarantor; the landlord can still pursue you for what the company cannot pay.
- The company is struck off. Striking the company off the register does not cancel your personal promise.
What is a principal debtor clause, and why does it matter?
A strict guarantee makes you liable only if, and to the extent that, the company is liable. Many lease guarantees go further. A “principal debtor” clause says the landlord may treat you as if you were the primary debtor, not just a guarantor. An “indemnity” clause promises to make good the landlord’s loss in its own right.
These clauses matter because they can remove defences that would otherwise help a guarantor. For example, if the company’s obligation is reduced or becomes unenforceable, a pure guarantor may argue that his liability falls with it. An indemnity may still bite. Read the guarantee for these words before assuming any defence applies.
Does the guarantee survive a renewal, assignment or change to the lease?
This is the area most specific to leases, and the answer depends heavily on the wording.
- Renewal. A guarantee given for the original term does not automatically extend to a new lease or renewal term unless it says so. Many guarantees state expressly that they cover renewals, extensions and holding over. Landlords often ask the guarantor to sign again on renewal.
- Variation without your consent. Under a long-established common law rule, a guarantor may be discharged if the principal contract is varied after the guarantee is given without the guarantor’s knowledge or consent. The Singapore High Court stated the rule in Jurong Readymix Concrete Pte Ltd v Kaki Bukit Industrial Park Pte Ltd [2000] SGHC 174, while finding on the facts that the guarantor was not discharged. Most professionally drafted guarantees contain clauses saying that variations, extensions of time and indulgences do not release the guarantor, and courts generally give effect to clear clauses of that kind.
- Assignment or subletting. If the company assigns the lease to a buyer of its business, whether you stay liable depends on the lease, the guarantee and any deed of assignment. Do not assume the buyer’s arrival releases you. Ask for a written release as part of the deal.
- Resignation as director. Leaving the board has no effect on a personal guarantee. Our note on a director who resigns but remains a guarantor explains how to track that exposure.
Can you negotiate a release when the company leaves the premises?
Often, yes, and it is far easier before a default than after. Options include:
- A surrender agreement. If the company and landlord agree to end the lease early, the surrender agreement should expressly release the guarantor from all future and past liability, or state exactly what remains.
- A replacement guarantor or security. On a sale of the business, the buyer or its director may provide a new guarantee or banker’s guarantee in exchange for your release.
- Applying the deposit. Agree in writing how the security deposit will be applied to arrears and reinstatement. Our guide to recovering a lease security deposit explains the common disputes.
- A capped settlement. Where arrears exist, a guarantor may negotiate a fixed sum in full settlement, paid on a schedule, with the release taking effect on final payment.
Whatever is agreed, get it in writing, signed by the landlord, and naming you personally. An email from a property agent saying “the landlord is fine with it” is not a release.
What should you do when a demand arrives?
- Note the date and deadline. Diarise every deadline in the letter.
- Get the full documents. Obtain the signed lease, the guarantee, every renewal letter, variation and side letter, and the landlord’s statement of account.
- Check the figures. Compare the amount claimed with what the guarantee covers. Check whether the deposit has been deducted and whether interest and costs are claimed correctly.
- Check for discharge points. Look for renewals, rent changes or assignments you did not consent to, and read the anti-discharge clauses.
- Talk to your co-guarantors. If others also signed, the landlord can usually choose whom to pursue, but you may later claim a share from them.
- Respond in writing. Either dispute the claim with reasons or propose terms. Do not ignore the letter.
Can the landlord make you bankrupt?
As an individual, a guarantor is subject to the personal bankruptcy regime under the Insolvency, Restructuring and Dissolution Act 2018. A creditor can apply to make an individual bankrupt only if the debt is at least S$15,000 and the debtor appears unable to pay it. One common way a creditor shows inability to pay is by serving a statutory demand and waiting for the 21-day period to expire without payment, security or settlement. These are personal bankruptcy rules for you as guarantor; they are separate from the winding up rules that apply to the company.
If you receive a statutory demand, the deadline to apply to set it aside is short. Our article on a statutory demand served on a personal guarantor explains the deadlines and the grounds that tend to succeed.
Documents checklist for a guarantor
- The signed tenancy agreement or lease, including all schedules
- The guarantee clause or separate guarantee deed
- Every renewal, extension, variation and side letter
- Any assignment, sublease or landlord’s consent
- The landlord’s statement of account and demand letters
- Records of the deposit and any banker’s guarantee
- Handover and reinstatement records, including photographs
- Any written release or surrender agreement
Example: the renewal nobody re-signed
Example: A director personally guaranteed his company’s three-year lease of a retail unit. When the term ended, the company and landlord signed a renewal letter for a further two years at a higher rent. The director signed the renewal letter only as director of the company. Eighteen months later the company closed its shop, and the landlord wrote to the director demanding the unpaid rent and the cost of reinstatement.
The director’s first task is to read his original guarantee. If it expressly covers “any renewal or extension of the term”, he is likely to remain liable for the renewal period. If it covers only the original term and contains no such wording, he has an argument that the renewal is outside his guarantee, and the rent increase may also be relevant. The landlord, on the other hand, may say he consented to the renewal by signing it. Each side’s position depends on documents, which is why he gathers them before replying. This is a hypothetical illustration, not a real case.
Frequently asked questions
Does the landlord have to sue the company before coming to me?
Not necessarily. Many lease guarantees allow the landlord to demand payment from the guarantor directly once the company defaults. Check whether yours requires the landlord to pursue the company or the deposit first.
I only signed as director. Am I still personally liable?
It depends on what you signed. If the document contains a guarantee clause that you signed in your personal name, you may be liable even if you also signed for the company. If you signed only on the company’s behalf and gave no personal promise in writing, the landlord may struggle to show an enforceable guarantee.
Can the landlord claim rent for the whole remaining term?
If the lease is terminated early, the landlord’s claim is usually for its losses, which may include lost rent until the premises are re-let. It is generally expected to take reasonable steps to reduce that loss. The outcome depends on the lease wording and the facts.
Will the deposit be used before I have to pay?
Not automatically. Some leases require the landlord to apply the deposit first; many let the landlord choose. Ask for a statement showing how the deposit has been or will be applied.
Does the guarantee end if the building is sold?
A sale of the building does not by itself end the guarantee. Whether the new owner can enforce it depends on the lease, the guarantee and how the landlord’s rights were transferred.
Need help with a personal guarantee on your company’s lease?
If your company, or you as a director or shareholder, is dealing with a landlord’s demand under a personal guarantee or planning to exit a lease you guaranteed, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133 or +65 9018 0072. We will help you understand the documents and deadlines. Where your matter needs a lawyer, we will refer you to a firm on our panel of Singapore law firms that regularly handles commercial lease and guarantee disputes. Raffles Corporate Services is a corporate services provider, not a law firm, and this article is general information, not legal advice.
The Raffles Corporate Services Editorial Team, Raffles Corporate Services