The role of a guarantor in a lease agreement is to act as an additional guarantee for the landlord, ensuring that the tenant’s financial obligations will be fulfilled if they are unable to pay the rent. The guarantor, therefore, assumes responsibility for settling the tenant’s debts in case of default, functioning as a financial “plan B”.
Guarantor Rights
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Benefit of Prior Execution:
This is a right granted to the guarantor, which allows them to refuse payment of a debt until all assets of the principal debtor have been executed (seized and sold) and exhausted, without the creditor having managed to satisfy their credit. In other words, the guarantor is only obliged to pay the debt after attempting to execute the principal debtor’s assets.
This benefit is a manifestation of the guarantor’s subsidiary liability, meaning they only respond to the debt after the principal debtor’s resources are exhausted. However, it is common for guarantee contracts to include a clause waiving this benefit, making the guarantor jointly and severally liable from the start, which means the creditor can demand payment directly from the guarantor without first executing the debtor’s assets.
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Subrogation:
If the guarantor pays the debt, they have the right to be subrogated to the creditor’s rights, meaning they can demand reimbursement from the debtor for the amounts paid.
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Benefit of Term:
In some situations, the guarantor may have the right to pay the debt in installments, which facilitates financial management.
Guarantor Obligations
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Subsidiary Liability:
The guarantor is responsible for payment of the debt if the debtor does not fulfill it. This liability may be joint and several if the benefit of prior execution is waived.
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Payment Guarantee:
The guarantor must guarantee that the debtor fulfills their financial obligations, and, in case of default, must assume payment.
Important Considerations
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Trust in the Debtor:
Before accepting to be a guarantor, it is crucial that there is trust in the debtor’s ability to fulfill their financial obligations. The guarantor should be aware of the associated risks and carefully evaluate the debtor’s financial situation.
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Careful Reading of the Contract:
It is essential that the guarantor reads and understands all clauses of the lease agreement, especially those related to the guarantor’s rights and obligations, such as the possible waiver of the benefit of prior execution.
The waiver of the benefit of prior execution is often a requirement of creditors for the execution of contracts, such as leases or loans, which can place the guarantor in a position of greater financial risk.
Being a guarantor in a lease agreement is a decision that should be made with caution, considering the potential financial risks involved.