Guarantees & Personal Security

Node 35530 addresses the use of personal guarantees as a form of security supporting a mortgage or other property-secured lending facility. A guarantee is an undertaking by a third party, the guarantor, to answer for the borrower’s debt if the borrower fails to do so, and is frequently required by lenders as additional security where the borrower’s own assets or income do not, on their own, satisfy the lender’s credit assessment.

Guarantees are used across both residential and commercial property lending. In the residential context, a guarantee is commonly given by a parent supporting a child’s home loan, while in the commercial and development context, a guarantee is commonly given by a company director or related entity supporting a corporate borrowing facility. Because a guarantee exposes the guarantor’s own assets to a lender’s claim, Australian credit law imposes specific procedural protections on the process by which a guarantee is obtained, particularly independent legal and financial advice for the guarantor before the guarantee is executed.

This node serves lenders, guarantors, and advisers concerned with the structure and enforceability of a guarantee, distinct from the structure and registration of the underlying mortgage, addressed in node 35510, and the default and enforcement provisions applicable to that mortgage, addressed in node 35520.

This node addresses the use of personal guarantees as security for property-secured lending, including the distinction between a guarantee and an indemnity, the procedural protections applicable to guarantors, and the circumstances in which a guarantee may be enforced or released. It does not address the structure and registration of the underlying mortgage, addressed in node 35510, nor the mortgagee’s default and enforcement rights against the borrower, addressed in node 35520.

• National Consumer Credit Protection Act 2009 (Cth), Schedule 1 (National Credit Code)

  administered by the Australian Securities and Investments Commission — imposes specific procedural protections on guarantors of consumer credit, including requirements for independent legal and financial advice before a guarantee is given.
• Competition and Consumer Act 2010 (Cth), Schedule 2 (Australian Consumer Law)

  administered by the Australian Competition and Consumer Commission — prohibits unconscionable conduct in the process by which a lender obtains a guarantee, including undue pressure applied to a prospective guarantor.
• Property Law Act 1974 (Qld)

  and equivalent general property legislation in each state and territory — administered by state governments and given effect through the courts — supplies the general law governing the creation, interpretation, and enforcement of guarantees and indemnities.

Guarantees arise in materially different circumstances across the residential and commercial lending contexts, though the underlying procedural protections apply throughout.