Most Landlords are aware that a sound guarantor is often as crucial as a good tenant. But what they often do not know, is that inadvertently releasing a guarantor of all its obligations is a frighteningly easy mistake to make. Head of Property Lesley Goring explains how this could happen to you, and how to take steps to avoid it.

Since the introduction of the Landlord & Tenant (covenants) Act 1995, most Landlords know that they can no longer expect a tenant or its guarantor to remain liable for the tenant's covenants in the lease for the full length of the term: any assignment of the lease to a third-party releases both the tenant and its guarantor from any future liability.

There is however long established case law (Holme v Brunskill), dating back to 1878, whereby any variation in the relationship between the principals to a contract (other than variations which are 'unsubstantial' or 'non-prejudicial to the surety') should also be consented by the surety.

When applied to a lease, this rule may have the effect of releasing the guarantor from all future liability should the terms of the lease be altered by the Landlord and the tenant without seeking the guarantor's consent.

This may easily occur when, for example, a landlord agrees to waive a restriction in a lease, thereby consenting to something which would otherwise be prohibited under the terms of the lease. Landlords should therefore be extremely wary if requested to agree such waiver!

Even seemingly minor alterations, such as those affecting the insurance or rental arrangements, or other management matters, may well fall within the trap.

Admittedly, the courts tried to correct the situation a few years ago (Metropolitan Properties Co (Regis) Ltd v Bartholomew 1996) and established that a variation which does not involve a change in the nature or extent of the tenant's obligations will not release the guarantor. But conceptual debates around the nature and the extent of a tenant's obligations and how they may be affected are likely to be hazy, risky and, at best, time consuming… the safest course of action is therefore for Landlords to make it their common practice to join any and all guarantors to any and all variations in the lease!

Derek Williams Partner / Head of Department 020 7544 5653 derekw@sghlaw.com