Landlords generally settle for a guarantee from an individual or company, although a guarantor's background should be researched. Past dubiety over an incoming landlord's ability to rely on a guarantee granted to his predecessor was clarified in the Waydale Ltd v DHL Holdings case last November. As a result, there is now a Court of Session precedent stating that a new owner has the right to rely on previously granted guarantees, unless the document declares anything to the contrary. Remaining pitfalls must be considered, however. It is vital that landlords bear in mind the possibility of a guarantor company ceasing to exist or becoming unable to meet a claim.
Further complications can arise when the guarantor is a tenant's foreign-based parent company.
Landlords facing this kind of situation must see evidence of the parent's ability to honour the guarantee and ensure that a Scottish court ruling could be enforced in that country. Another option is for the lease to be accompanied by a rent deposit agreement, which also has some drawbacks. Deposits of any more than two quarters rent are unlikely, so this system will provide only limited comfort for a landlord. A more unusual choice is to obtain a tenant default indemnity from an insurance company, making it possible to seek compensation for loss suffered through a tenant's insolvency. There are some weaknesses in this approach.