What is a deed of guarantee

4 min read
When loaning money to a company, especially a new company, it is common for the bank providing the facility to require a personal guarantee from the directors of the company. The reason for this is simple, the bank wants to reduce risk of the loan not being repaid by making the directors or share holders personally liable to repay the guaranteed obligations on demand.

Along with the personal guarantees (also called 'PGs') the bank may also require an indemnity and the obligations of this are considerable.

As the party/ies guaranteeing the loan are a separate legal entity to the company, the bank require them to obtain separate independent legal advice on the nature and effect of the guarantee deed.

* You cannot use the example for you guarantee as you must use the deed provided by your bank.

Important! By entering into a guarantee deed you may become liable instead of or as well as the Borrower. You should seek independent legal advice before signing a guarantee deed.

We have a Legal Advisor who is able to support you with independent legal advice for your guarantee deed and we offer:

  • Face to Face or Skype calls to suit your circumstances
  • Out of work hour meetings
  • Competitive Fixed fee - agreed up front with no hidden extras
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Our Legal Advisor will explain fully the implications of entering into the guarantee deed and the risks you need to be aware of. Call us now to discuss further on 0333 344 3234 (local call charges apply).

* Need to complete quickly? We can help at no extra cost

Can you negotiate the terms in a guarantee?

In theory yes, however the borrowers time frames may not allow the time necessary to negotiate the deed. The guarantee deed is often completed towards the end of the loan process, so the drive to finalise the formalities can be more important to the company, above removing or varying some of the standard clauses.

There are however some lenders who require the guarantee deed be received without amendments and as such none of the terms can be amended.

What does the legal advisor need to provide the independent legal advice?

  • Mortgage offer;
  • Terms & Conditions of the lender;
  • Guarantee deed
  • An explanation of the purpose for which the facility/new facility is required;
  • A note of the current amount of indebtedness of the principal debtor;
  • A note of the amount of the principal debtor's current overdraft facility; and
  • A copy of any written application by the principal debtor for a facility.

FAQs about Mortgage Guarantee Deeds

What is the Guarantor guaranteeing?

Depending on the guarantee deed, the guarantor has an obligation to "All present and future payment obligations and liabilities of the Borrower due, owing or incurred under the Advance and Additional Borrowing to the Bank together with Interest and Expenses as payable by the Borrower.

Can you stop being a Guarantor?

There is a termination clause within the guarantee deed however, in most deeds, the termination of the guarantor doesn't always mean they have terminated their obligations under the deed. This means that although the Guarantor can terminate the guarantee at any time, the liability of the Guarantor under the guarantee deed will continue in full force and effect in relation to all Guaranteed Obligations as at the date of expiry of the notice.

Can the bank set-off a liability?

Yes, in some mortgage guarantee deeds, the bank has the right to set-off the liability of the guarantor against any liability the bank has with the guarantor. An example of the type of liability the bank has with the guarantor would be savings held in the bank. This can happen at any time, whether the borrower has defaulted on their obligations or not.

What happens if the borrower needs more money?

The borrower can request further borrowing from the bank without the consent of the guarantor. Even though there is no consent required from the guarantor, they will still be liable for the additional borrowing under the terms of the Guarantee Deed.

Does the guarantee deed replace the mortgage offer?

No, the Deed of Guarantee and Indemnity within it is supplemental to the Mortgage between the Borrower and the Company relating to the Property, which incorporates the Conditions and the Mortgage Offer.

What happens if the borrower stops paying the mortgage repayments?

If the borrower stops repaying the mortgage repayments, the bank can call upon the guarantor to repay the loan amount including any costs in full. If the guarantor is unable to repay the full loan amount then the bank could seek settlement from their personal assets and if this doesn't settle the amount in full, then the bank could start bankruptcy proceedings.

You cannot be a director of a company if you have been made bankrupt. If the guarantor is made bankrupt they they cannot be a company director whilst the bankruptcy remains undischarged. In addition to this, the guarantor would be legally prohibited from forming, promoting or managing the limited company unless they have written consent from the court.

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