Court of Appeal Case acts as Salutory Warning not to release a Guarantor inadvertently

It may be of interest to many of you to learn of a case published last week in which the English Court of Appeal upheld the High Court decision that a guarantor had been released from its obligations under a lease due to the variation to the lease through a Licence for Alterations to which the guarantor had not been a party and had not consented.

In Topland Portfolio No. 1 Ltd v Smiths News Trading Ltd [2014] EWCA Civ 18. the Court of Appeal decided that:

  • the Licence for Alterations had the clear potential to increase the tenant's obligations and therefore also potentially increased the guarantor's obligations in the event of default by the tenant.
  • there was no forbearance by the landlord and the licence did not amount to the giving of time by the landlord to the tenant.

This decision provides helpful guidance as to the meaning of "forbearance" or "time given" by a landlord. It also acts as a useful reminder to landlords and their lawyers that they must take care not indirectly to cause the release of any guarantors when dealing with licences for alterations.

This case is expected to be highly influential on the Royal Court of Jersey. Landlords should therefore be aware that a failure to ensure that a guarantor is party to a variation to a lease or any other contract impacting upon lease obligations where a guarantor's obligations are potentially (i.e. not necessarily actually) increased could result in the guarantee security being lost.

Please do not hesitate to contact us if you wish to discuss this decision or its implications.