Though it is not new law, the recent case of Topland Portfolio No. 1 Limited v Smiths News Trading Limited  EWHC 1445 (CH) highlights the importance of joining guarantors in as a party to licences for alterations. This was a claim brought by the landlord against the guarantor requiring it to be responsible for rent and other sums owing under the lease following the tenant’s dissolution.
The lease was entered into in 1981 between the original landlord, the tenant, now known as Payless DIY Limited, and the guarantor, now known as Smiths News Trading Limited. The tenant carried out an extension and alterations pursuant to a licence for alterations entered into in 1987. Smiths was not a party to the licence for alterations. In 2001 the claimant, Topland, purchased the freehold reversion and became the landlord. In 2011 the tenant went into administration and in 2012 the tenant was dissolved. Following the tenant’s dissolution, Topland gave notice to Smiths that it would require it to be responsible for sums owing under the lease. It later gave notice under the terms of the lease requiring it to take a new lease for the remainder of the term.
Smiths claimed it was released from liability as guarantor due to the variation made to the lease by the 1987 licence for alterations, to which it was not a party.
Deputy Judge Alison Foster QC agreed. The lease contained an absolute prohibition on alterations. The tenant’s, and consequently the guarantor’s, covenants became more onerous following execution of the works under the licence because the lease covenants then applied to the demise as altered by the works. In particular, the extent of the obligations to clean, repair and yield up was increased by entering into the licence. As the guarantor had not consented to the licence for alterations, the common law rule applied to release the guarantor entirely from its liability under the lease.
The case confirms the common law position but most modern leases include express provisions which attempt to ensure the guarantor’s liability will not be affected by variations to the lease, whether or not they are made with the guarantor’s consent. Landlords should check the guarantee provisions in their leases to ensure they are protected. However, even if a lease contains express provisions, best practice is still to join the guarantor in as a party. If landlords are particularly concerned to ensure guarantors will not be released following a variation (perhaps due to a weak tenant covenant), they could consider joining in guarantors under authorised guarantee agreements to supplemental documents. If acquiring a property subject to existing leases, purchasers should check whether there are any guarantors and, if there are, whether the guarantors were made a party to all licences and deeds which are supplemental to the leases.