Guarantor on Retail Lease for Shop

Hey Guys,

My Girlfriend runs a small business & has done so for the last 2 years. The lease for the retail shop is coming up for renewal. Originally we signed the lease under a Company name. However, one of the caveats the agent/landlord required (Seeing there no real assets associated to the Company) was to make my Girlfriend and myself both sign not only as Directors of the Company, but, also as personal Guarantors. I've been told this is quite common. Also, for clarity both me and my Girlfriend are Directors of the Company that signed the lease.

To extend the lease I have managed to have it so that I will not be signing as a personal guarantor on the lease & only my Girlfriend will be a personal guarantor. We both however will still sign in the capacity of directors of the Company. Under this arrangement, if for example our Company was to default on the lease, they could only come after assets associated to the company & that of my Girlfriend (She doesn't have much in the way of assets overall anyway). They however would not be able to come after any of my personal assets & any income of mine that is not associated to the company.

One caveat they mentioned however is that if for example I wish to remove myself as a Director of the company in the midst of the signed contract the Landlord must agree to it, otherwise we would be breaking one of the conditions of the contract. If for some reason I wanted to do this, I highly doubt the Landlord would agree simply because they won't benefit at all from it.

Being a director of PTY LTD company, in what ways hypothetically am I exposing myself here? I'm thinking of thing such as Tax Liabilities etc. Would very much welcome other peoples opinions on this.

My concern is that if me & my Girlfriend split up in the future (Hopefully that won't happen), how am I exposing myself being a Director (Girlfriend is the other director) of the Company that has signed a 3-year retail lease?

Comments

  •  

    was to make my Girlfriend and myself both sign not only as Directors of the Company, but, also as personal Guarantors

    You were very brave and/or clueless back then. Hopefully the lease wasn't substantial.


    The requirements of a company director are very demanding. The 5-day AICD Company Director's Course is $8+k and requires a lot of business experience and continuing education.

    Summary of company director requirements here: https://asic.gov.au/for-business/small-business/starting-a-c...

    Read especially company director liabilities when things go wrong.

    •  

      You were very brave and/or clueless back then.

      OP's right that personal guarantees by directors is very common in these leases. A company, especially a new one, is going to have no assets and so having only that company sign without any guarantors is fairly useless.

      • +1 vote

        The clueless bit is being a guarantor and having the assets and the GF not having much.

        And if the business becomes wildly successful, would he participate in any of it? If zero or at GF discretion then he's bearing virtually all of the risk for little or no return.

        He also didn't provide limits and estimates of potential max downside, which you'd think a guarantor would consider (maybe he did).

        •  

          True. And the fact OP is asking "hey what are my liabilities as a director" 2 years after becoming one….

  •  

    The way I see it personal guarantor will involve your personal assets in the case of non paying rents and other liabilities.

  •  

    Are directors liable for company debts or losses or tax debts?
    Under certain circumstances, directors may be liable for debts incurred by the company when the company is unable to pay those debts, as and when they fall due (the company is insolvent). This is because one of the fundamental duties of a director of any company is to ensure that the company does not trade while it is insolvent.

    You may also be liable for company losses and tax debt.

    Consequences of failing to perform director duties

    If you fail to perform your duties as a director, you may:

    be guilty of a criminal offence with a penalty of up to a maximum of $200,000, or imprisonment for up to five years, or both
    have contravened a civil penalty provision (and the court may order you to pay to the Commonwealth up to $200,000)
    be personally liable to compensate the company or others for any loss or damage they suffer
    be prohibited from managing a company.

  • +1 vote

    This is why we have lawyers and accountants.
    If you resign as a director of the company, the company would be in breach of the lease obligations should the landlord not agree.
    If you have given no personal guarantee, this would likely be the end of it for you, but the landlord could evict your gf or insist on a rent increase or similar, because the terms of the lease would no longer apply (depending on what it says happens if the tenant is in breach).
    You really need to read the lease to understand what it says.
    If you remain a director you would be liable for any negligence or other breaches of director’s responsibilities. I probably wouldn’t remain a director of a business with an ex.

  • +1 vote

    Being a director of PTY LTD company, in what ways hypothetically am I exposing myself here?

    Talk to a lawyer/accountant, but the most common ones are trading while insolvent, tax liabilities, and unpaid super.

  •  

    It depends, even as a director of a company you still have to act reasonably. For example; if you do not pay rent or find your company in a large amount of debt, if debtors pursue legal action and as a director, the court finds you have not acted in a reasonable way because the company has no assets and you exploited this fact, you can be found legally liable personally as a director.

    Director liabilities also have an impact on your personal credit rating.

  •  

    Check out if there are vacancies around the area. If there are this gives you a lot of leverage for negotiating either having these clauses deleted or amended.

    I've been told this is quite common.

    Yes it is, by people who don't know what they are doing.