Rent guarantees
Rent guarantees

The following Property guidance note provides comprehensive and up to date legal information covering:

  • Rent guarantees
  • What is a rent guarantee?
  • Is a rent guarantee appropriate?
  • Covenant strength of the guarantor
  • What income is guaranteed?
  • Duration/release of seller
  • Buyer’s obligation to let the property
  • Rent
  • Rent free
  • Other tenant incentives
  • more

What is a rent guarantee?

A rent guarantee is an incentive offered by the seller of an investment property which has empty premises (eg an empty floor in an office block or a unit in a shopping centre). This may be because the property is newly built and the seller (as developer) has not secured tenants for all the units by the completion date or because a unit in an established property falls vacant between exchange and completion. A rent guarantee may also be used where a tenant is not paying full rent or has gone into insolvency.

It guarantees payment of a rental income to the buyer in respect of the empty premises. A seller might offer a rent guarantee if the premises are likely to be let soon after completion (eg there is a prospective tenant or the premises are sought after). This avoids it having to concede a price reduction.

The purpose of a rent guarantee is to place the buyer in the same position as it would have been had the premises been let on completion.

In exchange for the rent guarantee the seller will receive a higher headline price for the property but will be obliged to make payments to the buyer for the duration of the guarantee. The guarantee must be in writing and be signed