Jennifer Chappell, senior associate at Bircham Dyson Bell LLP, believes that the case of Trustees of Beardsley Theobalds Retirement Benefit Scheme v J Yardley is a warning to landlords to check that personal guarantors have been made aware of their commitments. Failure to do so could render the guarantee unenforceable.
"Personal guarantees should always be checked up front; there is no mileage in merely getting ink on paper - the guarantee may not be worth the paper its written on if the guarantor hasn't understood the implications," explains Jennifer Chappell.
"Landlords must make sure that individual guarantors are financially sound and know what they're gettting into, which means getting an acknowledgement in writing that they have been fully advised and are aware of the risks.
"I wouldn't advise individuals to give personal guarantees in any circumstances, given the state of the economy or not. However if you do agree, make sure you exercise caution and consider the implications with your legal advisors at your side. In the Yardley case, the defence of undue influence was successfully relied upon by Mr Yardley and his guarantee was unenforceable. After all, he was duped into signing up as guarantor to a lease when he thought he was witnessing a signature!"
"Responsibility also lies with the landlord to make sure the guarantor receives independent legal advice. Given the fact that the landlord knew the tenant company was having financial difficulties and the confusion over whether or not Yardley was a board director, the landlord should have got an unequivocal acknowledgement from the individual that he knew what he was signing" says Chappell. "Failure to do this may leave you high and dry".