Waivers by guarantor: Overview, definition, and example
What are waivers by guarantor?
Waivers by guarantor refer to provisions or actions in which a guarantor voluntarily relinquishes or gives up certain rights or defenses that could be used to avoid or limit their liability under a guarantee agreement. In many cases, a guarantor signs an agreement to guarantee the performance of a debtor’s obligations (such as paying a loan). A waiver by the guarantor means that they agree not to assert certain defenses, such as the right to require the creditor to first pursue the debtor before making a claim against the guarantor, or that they waive their right to be notified of the debtor’s default. Essentially, a waiver by the guarantor limits their ability to challenge the terms or enforcement of the guarantee.
Why are waivers by guarantor important?
Waivers by guarantor are important because they provide the creditor with additional assurance that the guarantee will be enforceable, even if the debtor defaults. By waiving certain rights, the guarantor removes potential legal defenses that might otherwise complicate or delay the creditor’s ability to recover the owed amount. This makes it easier for creditors to enforce guarantees and ensures a smoother process in case of default. For guarantors, it’s important to fully understand the implications of waivers, as it may limit their ability to contest claims or limit liability in certain circumstances.
Understanding waivers by guarantor through an example
Imagine a business that takes out a loan and is required to have a personal guarantor. The guarantor agrees to sign the guarantee but also waives certain rights to notice or demand action from the business (the principal debtor) before the creditor can pursue the guarantor for repayment. If the business defaults on the loan, the creditor can immediately seek repayment from the guarantor, without having to first go after the business or prove that they made an attempt to collect from the business. The waiver ensures that the guarantor’s obligation is direct and unconditional.
Another example could be a lease agreement in which a landlord requires a personal guarantee from an individual (the guarantor) to cover the tenant’s obligations. The guarantor might waive the right to demand that the landlord first take action against the tenant for unpaid rent before pursuing the guarantor for payment.
An example of a waivers by guarantor clause
Here’s how a waivers by guarantor clause might appear in a contract:
“The Guarantor hereby waives any and all rights to require the Creditor to first seek recovery from the Debtor or any other party before proceeding with a claim against the Guarantor. The Guarantor further waives any defenses related to the enforcement of this Guarantee, including the right to notice of default, and agrees to remain fully liable for the Debtor's obligations under this Agreement.”
Conclusion
Waivers by guarantor are provisions that allow creditors to enforce guarantees more easily by limiting or eliminating the legal defenses a guarantor might assert. These waivers enhance the creditor’s security by ensuring the guarantor’s liability is clear and unconditional. However, they also impose significant risks on the guarantor, as waiving rights such as notice of default or requiring the creditor to pursue the debtor first may reduce their ability to contest claims. Guarantors should carefully consider these provisions before agreeing to a guarantee, as they can have long-lasting legal and financial consequences.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.