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With a suretyship agreement, a third party—the surety—promises to pay the debt of another if that party defaults. It provides the creditor with additional security, but the drafting requires careful attention, especially in the case of a private surety.
What is bail?
In the case of suretyship (Article 7:850 of the Dutch Civil Code), the surety undertakes towards the creditor to fulfill the principal debtor's obligation if the latter defaults. You often see this with loans and lease agreements: a parent company or a director-major shareholder acts as surety for the company.
Private or business guarantor
The law provides additional protection to private guarantors. If a natural person acts as guarantor outside of a profession or business, additional requirements apply, and the consent of the spouse or registered partner is often required for the guarantee to be valid (Article 1:88 of the Dutch Civil Code). In the absence of such consent, the guarantee may be annulled.
What needs to be in the agreement?
Clearly stipulate for which obligations the guarantor is liable, up to what amount, and under what conditions the creditor may hold the guarantor liable. An unlimited or vague guarantee leads to disputes and is very risky for the guarantor.
The risks for the guarantor
The guarantor can be held liable with his private assets. Therefore, it is important that he understands what he is signing and that the agreement limits the scope and duration of the suretyship. A good arrangement protects both the creditor and the guarantor against future conflicts.
Frequently Asked Questions
Is my partner's permission required to act as a guarantor?
In the case of a personal guarantee, often yes (Article 1:88 of the Dutch Civil Code), unless an exception applies, for example for a director who is also a major shareholder in the normal course of business. Have this assessed on a case-by-case basis.
Can I limit my suretyship?
Yes, you can limit the suretyship in amount and duration and set conditions for its use. Always do this; an unlimited suretyship is very risky.
What is the difference compared to joint and several liability?
In the case of suretyship, the surety is, in principle, only liable if the principal debtor defaults. With joint and several liability, the creditor can hold each debtor immediately liable for the entire amount.
Properly documenting a guarantee agreement?
Our legal experts draft a suretyship that provides the guarantor and the creditor with the proper security. This is often combined with a loan agreement. View our contract lawteam or schedule a free consultation.
