Personal guarantees, rent deposits and AGAs on a business lease

What is a personal guarantee on a lease?

A promise by you, usually a director or shareholder, that if the tenant company fails to pay rent or keep its other promises in the lease, you will. A limited company protects your personal assets; a personal guarantee gives that protection up for the lease. Guarantees often also say that if the company goes insolvent and the lease is disclaimed, you must take a new lease of the premises yourself (RICS Code, Appendix B4). The Code also says the parties need to agree whether a guarantee is of an unlimited amount or capped at a specified sum, and that a deed of guarantee can make the guarantor responsible even after the tenant has assigned the lease. This guide covers business leases in England and Wales.

What is a rent deposit deed?

Instead of, or as well as, a guarantee, the landlord holds a cash sum, set out in a rent deposit deed, which it can draw on if you don’t pay. The RICS Code says the deposit terms should state the amount (including any VAT), how long it is held, whether it secures only the rent or all your obligations, and when it is returned (RICS Code, Part 3 para 3.1).

The tenancy deposit schemes cover deposits for residential assured tenancies (shorthold tenancies before 1 May 2026), not business leases, so the deed is your only protection. The RICS Code for leasing business premises (Part 3 para 3.2) recommends that deposits are held in a bank account used only for rent deposits, with interest going to the tenant, and that the deed states when the deposit will be returned.

How much are you really guaranteeing?

The RICS Code says the terms of a guarantee should state whether it covers only the rent or all the tenant’s obligations, any cap on the guarantor’s liability and when the guarantee will be released (RICS Code, Part 3 para 3.3). The example below shows why the cap matters.

Worked example (illustrative figures). A ten-year lease at £24,000 a year plus VAT. The landlord asks the director for a personal guarantee.

The RICS Code recommends that heads of terms say whether a guarantee covers only rent or all obligations, any cap, and when it will be released. Agreeing those points before the lease is drafted is far easier than afterwards.

What is an authorised guarantee agreement (AGA)?

For leases granted on or after 1 January 1996, the Landlord and Tenant (Covenants) Act 1995 says that when a tenant lawfully assigns the whole lease, it is released from the lease obligations. Under section 24(2), a guarantor of that tenant is released to the same extent.

But under section 16, the landlord can make its consent to the assignment conditional on the outgoing tenant guaranteeing the incoming tenant in an authorised guarantee agreement. The Act limits what an AGA can do:

• It can only guarantee the immediate assignee, not anyone the lease passes to later (section 16(4)).
• It ends when that assignee is released, usually when it assigns on in turn (section 16(4)).
• It can require the outgoing tenant to take a new lease if the assignee’s lease is disclaimed, for no longer than the remaining term and on no more onerous terms (section 16(5)(c)).

Many leases say in advance that an AGA will be a condition of consent, which section 19(1A) of the Landlord and Tenant Act 1927 allows for these leases. Leases granted before 1996 work differently and need specific advice.

If you are ever chased as a former tenant, or as the guarantor of a former tenant, for a “fixed charge”,section 17 of the 1995 Act says you aren’t liable unless the landlord served notice on you within six months of the amount falling due. A fixed charge means rent, a service charge, or a fixed sum payable for breaking a tenant covenant (section 17(6)). Section 17 doesn’t protect the guarantor of the current tenant.

How can you limit a personal guarantee?

• Offer a rent deposit instead.
• Cap the guarantee at a fixed sum or a number of months’ rent.
• Limit it to rent only, not all obligations.
• Make it end on a set date, or once the company has met a profit test or paid rent on time for a period.
• Make sure it ends when the company lawfully assigns the lease.
• Resist an obligation to take a new lease on disclaimer, or limit how long it lasts.
• If there are several guarantors, ask that each is liable only for a share.

A personal guarantee puts your own home and savings at risk, so read it as carefully as the lease. Have both checked by a solicitor before you sign: we introduce you to an independent SRA-regulated solicitor who can review them, and a guarantor may need separate advice from the tenant company.