Lease Guarantees

In a recent case, two directors had personally guaranteed the lease obligations of their company. The lease was later varied to provide for a larger area at additional rent. The variation of lease had a space for the guarantors to sign but for whatever reason their signatures were not obtained.


The company collapsed and the landlord looked to the guarantors to pay unpaid rent, but the court held that there was no effective guarantee.


The landlord could not even claim under the initial lease guarantee because a creditor cannot enforce a guarantee if the guarantee has been varied in a way that increases the guarantor''''s risk, unless the guarantor has signed a new guarantee accepting the increased risk.


In another case, four people were supposed to guarantee a company''''s lease obligations, but only one person signed the guarantee. When the company failed and the landlord looked to the single guarantor for payment of outstanding rent, the court held that the guarantee was ineffective. 



Where there is an implied term in a guarantee that more than one person will provide the guarantee, the guarantee can only be effective if all of the proposed guarantors properly sign.