Accidental Release of Lease Surety and Guidance on Meaning of Word “Forbearance”

Where a Surety enters into a lease to give a guarantee, the Landlord should make it a requirement that that Surety join into any licence to alter which changes the nature of the premises.

Such alterations may increase the insurance premiums, and potentially, the burden on the Surety under the rent review clause, and, under the repair, redecoration, reimbursement, and reinstatement covenants, should the tenant default.

In Topland Portfolio No. 1 Ltd v Smiths News Trading Ltd [2014] the lease’s restrictions on alterations were tight so the Surety would have known when it became party to the Lease that those burdens could not be increased as a result of additions, alterations or improvements to the premises, because no such additions, alterations or improvements could be made unless the Landlord consented to them outside the framework of the Lease. In that event, the Surety was entitled to expect that it’s consent would be sought as well.

The Court of Appeal dismissed the landlord’s appeal and held that the Surety had been released from it’s obligations under the lease as it had not been a party, nor consented, to the licence for alterations.

The Landlord tried to argue that the guarantee contained the usual proviso that no forbearance would release the Surety. But the Court said those words only applied where the landlord temporarily held off enforcement proceedings for a breach of covenant.

Here there had not been a breach of covenant. The licence for alterations had varied the strict prohibitions of the lease, and, pre authorised the works so there never was a breach of covenant to which the proviso might have applied.

This blog is made out of general interest. It does not reduce the need to get proper legal advice in individual cases.