The case of Topland Portfolio No.1 Limited v Smiths News Trading Limited has been a reminder to landlords of the importance of ensuring that changes to a lease do not lead to an ineffective guarantee.
The importance of guarantors can be seen within many pharmacy businesses, whether the guarantees are of a personal or parent company nature.
In this Court of Appeal decision Mr Justice Arnold, upholding the first instance decision, concluded that the terms of a licence for alterations, in this instance allowing the tenant, Payless DIY Ltd, to convert premises for use as a garden centre, had the effect of increasing the tenant’s obligations.
Accordingly, by the original landlord allowing an increase in obligations under the lease, they had also potentially increased the obligations of the guarantor. At no point had either party sought consent of the guarantor for the works to take place and accordingly the guarantor was released from its obligations when the current freehold owner of the land, Topland Portfolio No.1 Limited, sought to enforce its terms.
This decision acts as a reminder of the rule in Holme v Brunskill, where the guarantor was released from its obligations following a variation to a lease, due to not being asked to give consent. This was despite the fact that the Court in that case held that the changes had not substantially or materially altered the tenant’s obligations under the lease.
As such, the importance of considering the guarantor when making changes to a lease of pharmacy premises should always be at the back of a landlord’s mind.
Richard Flenley is a senior associate in the property litigation team at Charles Russell LLP.