Real Estate Tip of the Week: Guarantors - Keep ‘em Close
Published 24 February 2014
In June last year, we advised that the High Court found that a guarantor of a lease was discharged in full after the landlord and the tenant, but not the guarantor, entered into a licence for alterations. To view the tip click here.
The Court of Appeal has now upheld last year's Topland v Smiths decision, holding that the licence amounted to a variation of the lease as it had the potential to increase the tenant's obligations and, applying the Holme v Brunskill rule, the guarantor was released from its surety obligations.
What was interesting about the Court of Appeal decision was the comment by Mr Justice Arnold that "if it had been the draftsman's intention to stipulate that the rule in Holme v Brunskill did not apply at all, it would have been perfectly easy for him to do so in a variety of ways". Whilst this may offer some comfort to landlords and others that incorporate such protective drafting, the best course of action is to ensure that any guarantor is a party to licences for alterations, deeds of variation or other supplemental lease documents.