Who gets the guarantee?

Case Note

Bradberry Pty Ltd & Ors v Curtis-Morris

The Issue

Can a landlord 'fresh on the scene' enforce a guarantee made to a previous landlord?

What happened?

In a recent case heard in the County Court, a tenant had entered into a lease with a landlord for four years, secured by the guarantee of an individual. The landlord subsequently sold the property and the purchaser became the new landlord. One month later the tenant abandoned the property with three months rent in arrears.

The new landlord immediately sought new tenants but was initially unsuccessful. After seven months, a new lease was signed and the landlord subsequently sued the guarantor under the old lease for all unpaid rent, damages and interest.

The old guarantor argued that:

1. He was not bound to the new landlord because the guarantee had not been formally assigned from the old landlord to the new landlord, and
2. The new landlord had not done enough to minimise loss.

The Court ruled in favour of the new landlord, having found that:

1. A guarantee in these circumstances 'runs with the land', as it is not specific to one landlord. Therefore, the new landlord could enforce the guarantee, and
2. The new landlord had acted reasonably and justifiably in trying to minimise loss. They had immediately advertised and engaged agents to find new tenants, they had charged a reasonable increase in rent, and they had offered standard enticements to attract new tenants.

Practical tip

Whenever there is a change in the ownership of freehold title to a leased property, the guarantee must remain enforceable. Nothing should be done which might void the guarantee.

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The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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