Old English case law remains relevant to today’s Landlords
A recent case has sounded a warning to landlords that the guarantor for a lease may not necessarily have to step in if a tenant defaults.
If there has been any variation to the lease since it was originally signed, the guarantor may no longer be required to fulfil the obligations to which it originally signed up.
Matthew Smith, commercial property specialist with Samuel Phillips Law Firm, commented: “All too often, the landlord forgets about the guarantor after the completion of the lease. However, it would be far wiser to include the guarantor in any variation of the lease, and keep him informed of important developments during the lease term. Variations often occur, but rarely does the landlord realise that such variations could be releasing the guarantor from their obligations.”
This warning follows a recent case, Topland Portfolio vs Smith News Trading, where Smiths (the guarantor) successfully argued that it had been released from its obligations under the lease by a 1987 variation, entered into six years after the lease was signed. Despite Topland (the landlord) arguing that the works which were the subject of the variation were being planned at the time the lease was agreed, the judge ruled that the additional burden the variation would place on the guarantor was beyond what it had agreed to originally.
Mr Smith recommended that a landlord’s best option is to obtain consent from the guarantor to each variation where it involves extra obligations on the guarantor.
He commented: “It is far better to make the guarantor an active participant in the lease by making him or her party to any variation between landlord and tenant.
“Interestingly, this case shows the continuing power of old English case law. Smith News Trading, the guarantor, relied on a case from 1878 to demonstrate that a variation of the lease had in fact released it from its obligation to step in and continue the lease of the tenant, who had gone into receivership.”
Samuel Phillips Law Firm offers a comprehensive range of legal services to business and private clients.
This was posted in Bdaily's Members' News section by Emma Hignett, i2i Business Solutions .
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