Can You Rely on a Guarantee?

Most modern leases impose an obligation on a tenant to stand as guarantor if the lease is sold on to a new tenant. 

There are strict rules on the steps a landlord must take if it wishes to rely on that guarantee, however.  A landlord cannot simply allow arrears of rent or other sums payable under the lease to mount up and then send the bill to the guarantor.

The landlord is required by law within a period of six months beginning on  the date a sum of money becomes due to serve on the guarantor notice informing the guarantor that the sum has fallen due and that it is the landlord's intention to recover the sum from the guarantor together with (where payable) interest.

A court case last year established that this requirement can result in some perverse consequences.  If, for example, a rent review is taking place then even if the tenant is not in arrears, a landlord should serve notice on the guarantor within six months of the rent review date (and every subsequent payment date until the rent review is completed) advising the guarantor that an increased rent may be due; the tenant may fail to pay; and if the tenant does fail to pay it is the landlord's intention to recover the money from the guarantor.

Many rent reviews are completed more than six months after the rent review date and the consequences for landlords if the tenant cannot pay the new rent are that if they fail to follow the correct procedure they also lose the right to recover the arrears from the guarantor.

If you are a landlord and are concerned about protecting your rights against a guarantor then you can take advantage of Cousins Business Law's free lease review service.

**Since posting the above the law has changed - please see the update**

Steven Petty, Commercial Property Lawyer