Personal Guarantees

Directors of property companies are often asked to give personal guarantees or other security for their companies’ borrowings. Getting swift and specialist advice in this area can protect your interests without slowing the transaction down.

Regardless of the nature or value of transaction, your position as guarantor deserves the very best advice from experienced property lawyers. We can advise in person or remotely.

What are personal guarantees?

Promises from a borrowing company’s director that, if the company does not repay the debt to the lender, the director will do so. Directors might also be asked to sign a share charge.

Why do lenders ask for personal guarantees?

Lenders like getting paid back. Although they will take a mortgage over a company’s property as security, they frequently ask for further security. Companies do go bust, new companies and SPVs do not have much in the way of assets, development sites can go horribly wrong, and lenders like the extra option of being able to pursue the director for some money. High levels of security help keep lending rates down and motivates directors too.

Why do lenders require directors to take advice?

Courts have held that directors who were not suitably advised could use ‘I didn’t know what I was signing’ as a defence to stop the lenders from pursuing them for money under the guarantee. Directors have also successfully used ‘I was being coerced into this’ as a defence, so your adviser will check for any signs of that happening.

What does the advice entail?

We tell you what you are personally putting on the line; how things can go wrong; what your obligations to the lender are; if, how, and when they end; and what you should watch out for and record, and the knock-on effects to your personal and corporate affairs. These all vary from guarantee to guarantee.

We check for signs of coercion; that you have understood what has been said and that you have understood what deal the company is doing.

Do I have to write anything down?

No, you will get a follow-up letter with all the advice in writing.

What happens after I have signed?

Your lawyer will certify to the lender that you have had the advice and you or they will return the signed documents to the lender. They will then confirm the advice you have been given in a follow-up letter.

What is a share charge?

Another form of security. Instead of promising money, you give the lender control of your shares in the company. This gives them extra comfort that the company is not going to take off with their money, and it is more common in development deals than in BTL lending.

How much does the advice cost?

Our fees start at £250 plus VAT. They increase with the number of guarantors, for high-value loans being guaranteed, for unusual or high-risk transactions or security documents, and with increased travel time for a face-to-face meeting. The borrowing company can usually pick up the bill for the directors’ advice, meaning it is a little more tax-efficient.

How long does it take?

Your lawyer will need a couple of hours to review the documents, the advice meeting should take no more than half an hour, the certificate will usually follow the same day and the letter of advice the next day.

Can’t the company’s lawyer do this?

No. There is too great a risk of conflict of interests. The company’s lawyer’s interest may be in seeing the deal go through, even if the guarantor should be turning it down. This is rare, but it does happen. Some lenders let another lawyer in the same firm advise the directors, but it is too frequently a job that falls last-minute to a junior lawyer as an afterthought. Through nexa, you can have specialist advice, remotely (or, throughout the South West at your own office or home), that is truly independent, swift and usually cheaper than it would be from traditional high-street law firms.

Next steps?

Fill in the form below and we will either come back to you with a fixed fee for the advice or contact you for a bit more information.