21 January 2020 #Commercial Real Estate
We have recently been contacted by a client who wants to renew his lease of offices which is protected by the Landlord and Tenant Act 1954. The current lease was granted several years ago, is held by a company and when the lease was granted a personal guarantee was provided by one of the directors. The director does not want to provide a personal guarantee on the renewal. We were asked whether the landlord was entitled to insist upon the personal guarantee being provided on renewal.
The position is that if the tenant is not prepared to provide a guarantor, the absence of guarantors does not entitle the court to refuse to grant a new tenancy. However, if the parties cannot agree on whether the tenant is to provide a third party guarantor as security for the performance of its obligations under the new lease, the court will decide under section 35 of the Landlord and Tenant Act 1954. This provides that where there is disagreement between the parties the Court may determine by the point in dispute and in determining the Court shall have regard to the terms of the current tenancy and to all relevant circumstances.
The Court has discretion to include a term requiring the tenant to provide one or more guarantors within a specified period after execution of the new lease . In deciding whether to exercise its discretion, the Court will look at what is fair and reasonable, having regard to the terms of the current tenancy and to all relevant circumstances. The landlord may originally have required the tenant to provide a third party guarantor as a precondition to the grant of the current lease. but by the time of the renewal lease negotiations, the tenant's covenant strength may have improved, it may have a good record of payment of the rent and performance of covenants and it may not be reasonable for the landlord to insist on a guarantor. Accordingly, much will depend upon the state of the tenant’s accounts and history as a tenant when the lease comes up for renewal.
If the tenant does not comply with a condition to provide a guarantor within the period specified after the grant of the new lease, the landlord can serve a s.146 Notice specifying the breach, and then forfeit if the breach is not rectified.
Accordingly, if the tenant wants to renew a protected lease, has previously provided a guarantor and does not, at the time of renewal have a good payment history, it would be sensible for the tenant to be prepared to offer some other form of security such as a rent deposit when the request for renewal is made to try and ensure that the landlord does not insist upon a personal guarantee.