Coronavirus - Can You Rely on Commercial Lease Guarantees?
With measures now in place to protect struggling commercial tenants, landlords may instead be considering claims against guarantors. Here are five things for landlords to think about before relying on guarantees.
Impacts on Property Agreements
In light of the recent closure of many businesses, landlords of commercial properties may have concerns about the ability of tenants to continue to pay rent due under their leases, particularly where landlords have financial pressures of their own. This has been compounded by recent measures, which prevent landlords from forfeiting leases for non-payment of rent or from progressing or enforcing claims for possession. When they are financially able to do so, landlords may be inclined to wait to see whether defaulting tenants are able to continue to trade and to pay any rent arrears, and to rely on guarantees where tenants cannot.
Considerations to Protect Your Contract
Landlords who may want to rely on guarantees should check the terms of the guarantees now, to make sure that they are enforceable, and to comply with any notice provisions required by the guarantee. For example:
- If you are considering varying a lease at this time, remember to obtain the guarantor's consent to that variation. If you don't, the guarantee may not now be enforceable.
- If the guarantee contains any notice provisions (for example, requiring the breach to be notified to the guarantor within a certain timeframe) has this been done? A failure to comply strictly with any notice requirements may prevent you from claiming from the guarantor.
- If you are relying on an AGA (or claiming against a former tenant under an 'old' tenancy), remember to give notice to the guarantor or former tenant within 6 months of the sum falling due. A failure to give notice will prevent you from claiming from that guarantor.
- Are you prepared for the guarantor to exercise any step-in rights or other rights to which it may be entitled upon exercise of the guarantee or upon payment of the debt?
- Is the guarantor any more likely than the tenant to clear any arrears? If the guarantor is also likely to be experiencing financial difficulties (for example, if it is a group company of the tenant), then you should consider whether there is value in seeking to rely on that guarantee at all.
What Can You Do Now?
Given the tight timescales which often accompany enforcement against guarantors, it is worth checking the terms of any guarantees as soon as possible and serving notices or making preparations in plenty of time. Even if you are not expecting to rely on guarantees immediately, it can be helpful to understand the position and to make preparations in case of default in the near future.
If you are a landlord or guarantor and require specialist legal support in relation to your rights and liabilities during the Coronavirus pandemic, please contact Michelle Bendall, in our Property Litigation team on 07940 933 587, or complete the form below.