DAC Beachcroft Real Estate Advisory Alert: Tip of the Week - Guarantee, indemnity or both
Published 16 June 2014
Where tenants are required to provide a third party guarantor, landlords would be well advised to ensure that any guarantor also gives an indemnity in respect of breaches of the tenant's obligations in the lease.
A significant benefit of obtaining an indemnity in addition to the guarantee is that a variation of the lease will not discharge the indemnity since this is a primary liability, compared with a guarantee alone which is a secondary liability and, as we have reported previously, is likely to be discharged by a variation to the lease to which the guarantor's formal consent has not been given.
Landlords should be alive to the additional protection which a third party indemnity will give over and above a guarantee. Well advised tenants (and their guarantors) are likely to resist, but an indemnity might be a reasonable compromise where the proposed tenant has a weak covenant strength.