Leases and Guarantors

The “non-guarantee”

The decision to grant a lease is often related to the availability of a guarantor. A failure to ensure that the guarantor is correctly bound by the lease or the inadvertent release of a guarantor from a lease can therefore have disastrous consequences for a landlord. In many cases it is incorrectly assumed that a guarantor will continue to be bound following a variation of a lease. It is therefore important that active steps are taken to ensure that a guarantor remains bound by the provisions of a varied lease and not to simply assume that they remain bound.

A key area of risk in relation to the variation of a lease is where it is unclear whether or not the lease adversely affects the guarantor’s position. Similarly where there are related documents or agreements such as licences it should not be assumed that the guarantor is also bound in respect of those documents. In all cases it is strongly advisable to ensure that guarantors join in the signing of all supplementary agreements or varied agreements.

Where it is not possible to obtain additional signatures from a guarantor or it is anticipated that this will not be possible it is crucial to include an obligation in the lease and under an AGA obliging the guarantor to enter into further or supplementary agreements. This should however be complemented by a provision expressly providing that variations or supplementary agreements will not discharge the guarantor albeit that such provisions are not completing failsafe.

When considering the assignment of a lease it is important for buyers to ensure that all relevant documents have been executed by the guarantor or at the very least that it is clear that the guarantor has not been inadvertently released as a result of any such documents.