Landlords beware: the guarantor must be a party to subsequent lease variations/supplemental agreements

It is an established rule that where a guarantor guarantees the tenant’s obligations under a lease, any subsequent amendments to the lease will discharge the guarantor’s liability unless either: (a) the guarantor consents to the variation; or (b) the variation is insubstantial or it does not adversely affect the guarantor.

This rule has been affirmed in Topland Portfolio No.1 Ltd v Smiths News Trading Ltd [2014] EWCA Civ 19, where the Court of Appeal held that a guarantor had been released from its obligations under the lease because it had not been party to a subsequent licence for alterations.

The reasoning is clear.  A licence for alterations (or other lease amendment) has the ability to increase a tenant’s obligations under the lease.  The licence will be supplemental to the lease and the repairing covenants will apply to the alterations carried out by the tenant.  The licence for alterations may also include a reinstatement provision.  Clearly this will, in turn, affect the guarantor’s covenants under the guarantee, and therefore the guarantor must consent to the licence for alterations or be a party to the changes.

In Topland, the guarantor was released from all its obligations under the lease, and this underlines the importance of making sure that any guarantor is made party to subsequent lease amendments or variations.