Do I need legal advice when providing a personal guarantee?

The decision to provide a personal guarantee is a serious commitment, and if you have not received adequate legal advice with respect to the transaction, you are at risk of becoming liable for the same obligations imposed upon the borrower under a financial agreement.

It is important that you understand these obligations imposed on you, and that you seek legal advice prior to entering into the transaction. Failure to receive legal advice with respect to the transaction may leave you in a dire financial position, and you may be personally liable for immediate performance of the entire loan in the event the borrower is unable to do so.

With this in mind, we address a few key issues for your consideration when seeking legal advice in relation to a personal guarantee.

What is a personal guarantee?

A personal guarantee is an assurance or promise that an individual or corporation will perform an act, duty or payment of a debt under an agreement.

What are the risks in providing a personal guarantee?

The guarantee will be enlivened in the event of default of the borrower, and in these circumstances, the lender or third party will call upon you to perform the agreement. You may be liable for payment of the entire sum plus any additional fees outlined in the terms and conditions of the agreement. Personal guarantees can be secured by a particular asset, or they can be provided unsecured.

There are often ‘charging clauses’ contained in personal guarantee documents, and these clauses permit the financial institution or third party to take charge over any real property that you own in your individual capacity, or by the company who provided the guarantee in the transaction. This may include lodging a caveat over the property to secure their interest.

There can be serious consequences to providing a personal guarantee, and it is imperative that you have obtained legal advice as to your rights and obligations under the guarantee.

What benefit is there in providing a personal guarantee?

Your decision to become a guarantor to an agreement is assuming an enormous financial risk without any reward or benefit to you. This will not benefit your credit rating. Beware that the lender or financial institution may pursue you directly for performance even in the event that it has not pursued the borrower.

Can a personal guarantee be terminated or cancelled?

After a personal guarantee has been signed by the guarantor, it generally remains binding upon the guarantor despite there being no amount outstanding or owed to the lender at any point in time. There are rare circumstances where a personal guarantee may be revoked, however, this is often where there are elements of undue influence or unconscionable conduct at the time the guarantor entered into the transaction. Further, it may be that the guarantor was unaware of its obligations prior to signing the guarantee, and this may be another instance where the guarantee is unenforceable.

What do you need to do prior to meeting with your solicitor?

Most guarantees require a solicitor to be completely independent of the transaction, and therefore, the solicitor you select will need to be unrelated to the borrower and the lender of the transaction.

In order to prepare for your meeting with your solicitor, you will be required to:

  1. Provide copies of all documents pertaining to the transaction to your solicitors’ office – this documentation will include the guarantee, mortgage, loan agreement, letter of offer, and other requisite documentation provided by the lender;
  2. Read through the documents and ensure you are aware of the particulars of the agreement – for example, note the total loan payable to the lender, default interest rate and term of the loan agreement;
  3. Ensure that you are meeting alone with your solicitor, and if you are a related entity of the lender or borrower, to inform your solicitor upon your arrival; and
  4. Provide 100 points of identification to your solicitor – this may be your passport and driver’s licence, or your birth certificate and driver’s licence.

The next steps for you

If you are seeking legal advice pertaining to a personal guarantee, or are currently a guarantor under an existing agreement, DSS Law can provide assistance to borrowers, lenders, individuals or companies in these circumstances. It is imperative that you are aware of your obligations under these agreements, regardless of whether you are a guarantor or a borrower, and we are able to negotiate the terms of the agreement to mitigate any adverse action against you personally in this regard.

Please contact Renee Pappagallo, Partner of the DSS Law Property and Commercial team, on (07) 3210 2373 for an initial consultation today.



DSS Law insight articles are intended to provide commentary and general information. They should not be relied upon as formal legal advice. If you would like specific advice relating to this topic, please contact DSS Law on 1300 DSS LAW or