What Is A Deed Of Guarantee & Indemnity?

If you’re lending money, offering trade credit, supplying goods before payment, or entering a lease, you might want extra assurance that you’ll be paid. On the flip side, if you’re the director of a company taking on credit, you’ll often be asked to “go guarantor”.

That’s where a Deed of Guarantee and Indemnity comes in. It’s a powerful legal document used in Australia to back up a debt or obligation, reduce credit risk and provide clear remedies if things go wrong.

In this guide, we’ll explain what a deed of guarantee and indemnity actually is, how a guarantee differs from an indemnity, when you’d use one, the clauses to get right, and the practical risks to watch. By the end, you’ll know what to look out for and how to put the right protections in place from day one.

What Is A Deed Of Guarantee And Indemnity?

A Deed of Guarantee and Indemnity is a binding promise given by a person (or company) to support someone else’s obligations. It usually sits alongside a primary agreement (like a loan, supply contract or lease) and is signed “as a deed” for extra enforceability.

Two commitments often appear together in the one document:

• Guarantee: The guarantor promises to ensure the borrower/tenant/customer performs their obligations. If they don’t, the guarantor will do it (typically paying the debt).
• Indemnity: The guarantor agrees to compensate the creditor for any loss or liability connected with the borrower’s default, often on a broader, more immediate basis.

Because it’s a deed, it doesn’t need “consideration” (like payment) to be enforceable. It also tends to have stricter execution requirements-so it’s important to sign it correctly and keep complete records. If you’d like a tailored document, Sprintlaw can prepare a Deed of Guarantee and Indemnity that fits your transaction.

Guarantee Vs Indemnity: What’s The Difference?

These terms are often used together, but they do different jobs.

• Guarantee = secondary obligation. The guarantor’s liability depends on a valid, enforceable primary obligation (for example, the borrower’s debt). If the underlying debt is discharged or invalid, the guarantee can fall away.
• Indemnity = primary obligation. An indemnity stands on its own. It’s a direct promise to make good a loss. That means even if the underlying agreement is unenforceable for some reason, the indemnity may still bite (subject to its wording and any applicable law).

In practice, creditors prefer to include both. If one path to recovery fails, the other may still succeed. For guarantors, this is why negotiation and careful drafting matter-broad indemnities can significantly expand your exposure.

If you’re new to these documents, it also helps to understand what a deed is and how it differs from a contract. Our guide on What Is a Deed explains the key differences and why businesses use deeds for commitments like guarantees.

When Would You Use One In Business?

Deeds of guarantee and indemnity are common across many Australian business relationships. Typical scenarios include:

• Trade credit accounts: Suppliers extend 14-30 day terms and ask for a director’s personal guarantee, especially for new companies with limited assets or history.
• Commercial leases: Landlords want comfort that rent and make-good obligations will be met, often requiring directors to guarantee a tenant company’s lease.
• Loans and finance: Lenders may require guarantees from directors, parent companies or related entities alongside other security.
• Franchising and distribution: Franchisors or master distributors may insist on guarantees for fees and performance obligations.
• High-value services or staged projects: Where exposure builds over time, a guarantee and indemnity provides an additional safety net.

For the party being asked to sign, understand that a personal commitment isn’t just symbolic-it can affect your personal assets. Our overview of Personal Guarantees walks through what this means in practical terms so you can make an informed decision.

Key Clauses To Get Right

The strength and fairness of your deed come down to the details. Here are the provisions we regularly advise on.

1) Parties, Definitions And Scope

• Who is guaranteeing what? Clearly identify the creditor, the borrower/tenant/customer, and each guarantor.
• Primary agreement: Reference the underlying contract, facility agreement or lease, and define the “Guaranteed Obligations”.
• Continuing vs limited: Specify whether the guarantee is ongoing (covering future credit and extensions) or capped to a specific contract or amount.

2) Guarantee And Indemnity Mechanics

• Joint and several liability: If there are multiple guarantors, the creditor can pursue any one of them for the full amount unless limited otherwise.
• Unconditional payment obligations: Many deeds state the guarantor must pay “on demand” without set-off or counterclaim, speeding up recovery.
• Indemnity breadth: Indemnities are often drafted broadly to catch losses, costs, taxes and enforcement expenses-ensure scope aligns with commercial intent.

3) Caps, Time Limits And Carve-Outs

• Liability cap: Consider dollar caps or tying exposure to a percentage of the outstanding balance.
• Time limits: Add sunset dates or specify that liability ends after full performance and a defined notice period.
• Excluded losses: You may negotiate to exclude indirect or consequential loss, penalties or special damages.

4) Continuing Security And No Discharge

• Security that survives changes: Creditors will want the deed to survive amendments, extensions, waivers, variations or partial payments under the primary agreement.
• No merger: Make it clear the deed doesn’t merge with any judgment or settlement, keeping all rights alive until everything is paid.

5) Demand And Enforcement

• Demand process: Set out how a valid demand is made (method of delivery, required details) and any cure periods.
• Evidence clauses: Creditors often include clauses making a certificate of debt conclusive evidence unless proven wrong.
• Costs and interest: Spell out recovery of legal costs on enforcement and default interest, where lawful.

6) Interaction With Other Security

Guarantees often sit alongside other forms of security. For example, a lender or supplier might also take a General Security Agreement and then register a security interest on the PPSR to secure personal property. Your deed should address ranking, subrogation and how recoveries are applied if multiple securities exist.

7) Representations, Warranties And Acknowledgements

• Independent advice: Guarantors typically acknowledge they’ve had the chance to get independent legal and financial advice.
• No reliance: Clauses may state the guarantor isn’t relying on the creditor for information about the borrower’s creditworthiness.

8) Release And Termination

• When the deed ends: Define the conditions for release (e.g., full repayment of all Guaranteed Obligations and expiry of any claim period).
• Partial release: If guarantors change (e.g., a director resigns), outline how and when a partial release can be granted.

9) Execution As A Deed

Execution is often where otherwise solid guarantees fall down. Make sure the deed is signed correctly-if a company is executing, consider using section 127 of the Corporations Act (two directors; or a director and company secretary; or a sole director/secretary of a proprietary company) or a duly appointed attorney. Also confirm whether electronic signatures are permitted for deeds in your jurisdiction or if you need wet ink and witnessing.

Risks, Negotiation Tips And Practical Protections

Whether you’re the creditor seeking protection or the guarantor being asked to sign, here are the key risk areas and how to manage them.

For Creditors (Lenders, Landlords, Suppliers)

• Identify the right guarantors: Check ASIC records and ensure the individuals signing have the authority and financial standing you expect.
• Use both guarantee and indemnity: This provides overlapping avenues to recover if the primary agreement is compromised.
• Take complementary security: Consider a GSA plus PPSR registration to secure assets that can be realised if needed.
• Keep records tight: Maintain copies of the signed deed, underlying contract, notices and statements so you can evidence demand and quantum.
• Avoid variations that release guarantors: Some changes to the primary agreement can unintentionally discharge a guarantee. Draft a “no discharge” clause and follow consent processes.

For Guarantors (Often Directors Or Related Entities)

• Understand your personal exposure: A guarantee and indemnity can reach your personal assets. Know the cap (if any), duration and triggers for liability. Our guide to Guarantors sets out key rights and obligations.
• Negotiate scope and limits: Ask for an amount cap, exclude consequential loss, limit to a specific contract, set clear end dates, or replace with a bank guarantee if appropriate.
• Seek a release when obligations end: Build in a release process-once the debt is cleared and any claim period passes, ensure you’re off the hook.
• Monitor variations: Require your consent to material changes to the underlying agreement that could expand your liability.
• Get independent advice: A short advice letter can save painful surprises later and helps show the deed was entered into with understanding.

Common Alternatives And Complements

• Bank guarantee: The customer’s bank issues a payment undertaking to the creditor. Useful for leases and large projects.
• Security deposit: Cash held on trust that can be applied to unpaid amounts.
• Registered security: A GSA or specific security registered on the PPSR to secure personal property. This strengthens priority in insolvency scenarios.
• Retention/credit limits: Operational levers that reduce exposure without additional documents.

How A Guarantee Works With Other Documents

Guarantees often appear in a wider legal pack. For example, you might pair a tailored guarantee with a credit application, customer terms, and a PPSR security package. If the relationship ends or disputes arise, a well-drafted deed can also interact with a release document-separate from a guarantee, a deed of release or settlement can draw a line under issues once you’ve agreed a resolution.

Practical Tips To Avoid Disputes

• Keep it readable: Plain-English drafting reduces misunderstandings and speeds up signing.
• Match the deed to the deal: Don’t use a one-size-fits-all template-mirror the commercial terms, caps and timelines in the underlying agreement.
• Align notices and addresses: Make sure demand and notice provisions match across all documents so you don’t trip up on technicalities.
• Version control: If you vary the underlying agreement, update the deed or rely on a properly drafted “continuing security” clause that captures changes.

Key Takeaways

• A Deed of Guarantee and Indemnity gives creditors strong, overlapping rights to recover amounts if a borrower or customer defaults.
• A guarantee is a secondary promise tied to the primary obligation, while an indemnity is a primary obligation that can cover broader loss.
• These deeds are common with trade credit, commercial leases, loans and franchise arrangements, and often sit alongside PPSR-registered security.
• Key clauses include scope, caps, continuing security, demand and enforcement, and execution as a deed-each should be tailored to your deal.
• Guarantors should understand personal exposure and negotiate limits, while creditors should combine guarantees with practical security and clear processes.
• Correct execution matters: use the right company signing method under section 127 where applicable and check any requirements for electronic or wet-ink signatures.

If you’d like help preparing or reviewing a Deed of Guarantee and Indemnity for your Australian business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.