COVID-19: Holiday time for guarantors?

With many tenants seeking rental holidays most landlords may be shaking their heads over a loss or reduction of income for one, two or maybe more quarters.

Tenants are pressing for urgent answers to their requests but one group of landlords should take special care at this time; that is those whose tenants have guarantors.

That is because, unless they are careful, the landlord who rushes to agree a reduction may find himself losing not just one potential source of income but two.

There are two things to consider.

First, they might unwittingly agree to vary the lease so that the ability to recover from a tenant at a later date is lost, because such a variation would also release the guarantor to the same extent. If you want to preserve the right to recover from a guarantor a landlord must make sure that this right to indemnity is not lost. This is not a problem with leases that have been executed as deeds unless a deed of variation is concluded.

Secondly, in order to preserve the right to pursue a guarantor, or indeed an original tenant if they have not been released from liability, a landlord must serve a notice under section 17 of the Landlord & Tenant (Covenants) Act within six months of any fixed sum falling due, and fixed sum can include service charges. Any failure to serve on the guarantor within that time will see the landlord lose the right to pursue the outstanding sum from the guarantor.

Landlords should therefore take care how they agree to show consideration to their beleaguered tenants and should make careful diary notes on a rolling basis as to when it might be necessary to serve their section 17 notices.

We’re here to help

We appreciate that it is an uncertain time for commercial tenants and landlords alike, but we’re here to help. Our property litigation team is fully equipped to advise you on your rights and obligations during the pandemic, and beyond. Our legal services are operating as normal, with all of our lawyers able to work safely from home.

Nick Cox is a partner and head of Willans’ property litigation team. He deals mainly with disputes over commercial properties. Independent guide The Legal 500 UK references his “common-sense approach, high knowledge levels and excellent overall service”.

We’re regularly updating our website with more COVID-19 legal insights, so keep an eye on willans.co.uk/covid19 for the latest legal perspectives relating to the coronavirus.