Landlords - beware of the risk of releasing guarantors

It is well-established law that a landlord risks releasing a tenant’s guarantor from its obligations under a lease if the terms of that lease are varied without consultation with, or the consent of, the guarantor.

This has been illustrated once more by the Court of Appeal in the recent case of Topland v Smiths News Trading.

The tenant went into administration and the landlord called on the parent company, which had guaranteed the lease, to comply with obligations under the guarantee. The guarantor pointed to an earlier licence for alterations which allowed the tenant to construct a new garden centre on part of the site. The guarantor claimed that the effect of the document was to increase its obligations under the lease and that, as it had not been a party to the licence, it was released from any further liabilities under the guarantee. The landlord argued that the amount of rent payable had not been increased and that the guarantor’s liabilities were no more onerous than before.

However, the court ruled that the guarantor was entitled to expect that if the lease was to be varied (whether by means of a licence for alterations or otherwise) then its consent should first be sought, as clearly the document had the potential of adding to the obligations of both the tenant and the guarantor. As a result, the issue of the licence for alterations did release the guarantor from all liability under its guarantee.

Therefore the message for landlords is that they should always consult the guarantor of a lease before agreeing any variation of the terms of a lease with the tenant, or risk the guarantor avoiding all liability. Any landlord would be well advised to seek advice from their solicitor.

For advice, or more information, please contact alasdair.garbutt@willans.co.uk or call 01242 514000.

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