Q&As

Where a guarantor under a lease is not required to take a lease but rather pay a landlord a sum of money under the guarantee provisions in a lease, in order not to be a penalty and unenforceable, should that amount not exceed a reasonable estimate of the landlord's loss and would that be calculated by reference to the outgoings payable under the lease for a reasonable estimate of the time that it will take the Landlord to re-let the property?

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Produced in partnership with Kate Andrews of Hamlins
Published on LexisPSL on 14/08/2017

The following Property Q&A produced in partnership with Kate Andrews of Hamlins provides comprehensive and up to date legal information covering:

  • Where a guarantor under a lease is not required to take a lease but rather pay a landlord a sum of money under the guarantee provisions in a lease, in order not to be a penalty and unenforceable, should that amount not exceed a reasonable estimate of the landlord's loss and would that be calculated by reference to the outgoings payable under the lease for a reasonable estimate of the time that it will take the Landlord to re-let the property?
  • Penalty clauses
  • Taking a new lease or paying a lump sum

Where a guarantor under a lease is not required to take a lease but rather pay a landlord a sum of money under the guarantee provisions in a lease, in order not to be a penalty and unenforceable, should that amount not exceed a reasonable estimate of the landlord's loss and would that be calculated by reference to the outgoings payable under the lease for a reasonable estimate of the time that it will take the Landlord to re-let the property?

Penalty clauses

A guarantee is a contractual agreement that creates a secondary obligation for the guarantor to support the primary obligation of a third party (the Principal Debtor). The guarantee is a promise that the Principal Debtor will fulfil its obligations and if not, a promise to fulfil these obligations on their behalf. As a guarantee only creates a secondary obligation, if the covenants in the lease are void or unenforceable the guarantee will also be unenforceable.

The Supreme Court in the case of Cavendish Square Holding BV v Talal El Makdessi (El Makdessi) and ParkingEye Limited v Beavis considered the long established principles underlining the law relating to contractual penalty clauses. The case sets a new progressive test for determining whether or not a contractual provision will be considered penal and therefore unenforceable. In El Makdessi and ParkingEye the Supreme Court referred to the case

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