Variations and guarantors
Variations and guarantors

The following Property guidance note provides comprehensive and up to date legal information covering:

  • Variations and guarantors
  • Losing guarantee covenants
  • Lease variations
  • Rent reviews
  • Section 18 variations
  • Surrender and regrant
  • Variations to the guarantee

Losing guarantee covenants

At any point in the economic cycle landlords will want to protect themselves against tenant default, particularly in the case of potentially high risk tenants such as a recently incorporated small company or an insignificant subsidiary, or where the cost of enforcement is likely to be high as in the case of a foreign corporation. In times of recession (or credit crunch) the need for protection is a factor in every letting.

Landlords frequently seek a covenant from the guarantor as principal debtor or primary obligor so that the guarantor’s liability is direct and not merely secondary to that of the tenant. The extent of the guarantor's liability is a question of construction of the contract of guarantee, but it can never exceed the liability of the principal debtor. It is unlikely that a covenant given in those terms will displace the essential nature of the guarantor’s liability, which is secondary to and generally co-extensive with that of the tenant. The general law of guarantees continues to apply and so landlords must ensure that guarantee clauses contain protective wording to avoid release of the guarantor in certain well-known circumstances. They include:

  1. giving time—if a landlord 'gives time' to the tenant in a binding manner, this will (unless there is suitable protective wording) release the guarantor. To