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How to handle a call to pay under a personal guarantee

With many people struggling to get on the property ladder, or to afford a home to rent, it has become increasingly common for mortgage lenders and landlords to ask borrowers and tenants to find someone who is willing to act as a guarantor for them – in other words to settle their debts if they are unable to do so.

A personal guarantee may also be requested to secure a loan, particularly where the applicant has a poor credit history, or even to secure the debts of a private limited company.

As Sarah Grantham, Trainee Legal Executive at QualitySolicitors Parkinson Wright explains ‘The idea with a personal guarantee is that if the person who has taken out the mortgage, or agreed to rent a property or taken on a loan etc., suddenly finds themselves unable to pay the sums due, then there is someone else in the background who can legally be called on to settle some or all of what is owed.’

But what happens where it is you that has been asked to provide a guarantee, perhaps by your child or in your capacity as a company director, and unexpectedly the guarantee is called in?

Where do you stand? What is the extent of your liability? Is there any way you can avoid having to make the payments being demanded and, if not, is there anything you can do to limit the amount of money you will have to part with under the terms of the agreement you have signed?

The answer will depend on what the agreement says, the circumstances in which it was negotiated, how the terms of the agreement were recorded, whether any time limit for pursuing you under the terms of the guarantee has expired, and if the creditor is prepared to do a deal.

How we can help

We can review your guarantee agreement to see whether it is legally enforceable. Where there is a question mark over this – for example, because the terms of the agreement appear unfair or have not been properly recorded in writing – we can try to persuade the creditor to not pursue you for the amounts owed or to limit the amount sought to a fixed sum which you are prepared to pay.

This is something that we often have success in doing where the paperwork is not quite right or where your obligations are unclear, or where the creditor was obliged to do something. For example, perhaps they should have told you as soon as a payment was missed so the debt could not escalate, or obtained your consent before extending a loan or mortgage or renewing a tenancy, but they failed to do so.

Where the agreement appears to be in order, we can advise you on the extent of your obligations and on the maximum sum(s) you can be required to pay. We can also suggest ways you can meet your obligations without putting your own financial position in jeopardy, such as negotiating payment by instalments, taking out an affordable loan or even remortgaging your own home.

This could involve claims involving mortgage companies, banks, car hire companies and commercial lenders.

What if court action has been threatened?

It is not uncommon for creditors to threaten to take you to court if the sums being demanded are not paid within a given time frame. Indeed, you may even find yourself being served with a statutory demand requiring payment within 21 days if you want to avoid being made bankrupt.

While such threats should always be taken seriously, and urgent legal advice sought (particularly where you have received a statutory demand), you should avoid going into a blind panic.  It will usually be possible, with legal representation, to persuade the creditor to hold off on the threatened action while you consider your position and try to come up with an agreeable way forward.

For example, we are often able to resolve matters through correspondence or a face-to-face meeting, or via independent mediation.

How much might I have to pay?

As with most financial contracts, the devil will be in the detail.

For example, some personal guarantees demanded by landlords will only require you to cover the rent owed by the person you have agreed to act as guarantor for. However, others may also make you liable to cover the cost of dealing with any property damage, together with outstanding rent owed by other tenants living in the property, e.g. under a house share arrangement.

Likewise, while some guarantee agreements will be time-limited and perhaps even impose a cap on the maximum amount you can be called on to pay, some will be open-ended and uncapped and leave you exposed to the risk that the amount outstanding will continue to rise.

Contact us

To find out more about a personal guarantee, and how we can help where a creditor is seeking to pursue you, please contact Sarah Grantham or a member of our dispute resolution team on 01905 721600 or via email

Where you have been served with a statutory demand, DO NOT delay in seeking legal advice as you will only have 21 days in which to reply to the demand or to make the payment sought.


This article is for general information only and does not constitute legal or professional advice. 

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