Lease of commercial premises — Claimant guaranteeing tenant’s obligations — Defendant undertaking to indemnify claimant — Assignment of lease without landlord’s consent — Whether landlord’s acceptance of new occupant releasing claimant from guarantee — Appeal dismissed
A subsidiary of the claimant company held a lease of commercial premises. The claimant was guarantor of the subsidiary’s obligations under that lease. The guarantee contained a proviso that the claimant’s liability would be unaffected by “any neglect or forbearance of the Landlord” in seeking to enforce the performance of the covenants in the lease. The claimant entered into a share sale agreement with the defendant and an associated company, UH, whereby UH would purchase all the issued shares of the claimant’s subsidiary. UH covenanted that it would use reasonable endeavours to procure the release of the claimant’s guarantee, and would, in the meantime, indemnify the claimant against any liability arising under it.
The claimant’s subsidiary subsequently ceased trading, and a related company went into occupation of the premises and took over the payment of the rent. This amounted to a breach of the lease covenant against assigning without the landlord’s prior written consent. UH later wrote to the landlord, seeking its consent and asking for the claimant to be released from its guarantee. Meanwhile, the landlord continued to issue rent demands and accept rent payments.
Negotiations failed, and the landlord issued proceedings against the claimant to recover unpaid rent and interest pursuant to the guarantee. The claim was compromised, with the claimant agreeing to pay a sum in consideration of the release from its liabilities as guarantor.
The claimant brought proceedings against the defendant to recover that sum. The defendant sought to argue, in reliance upon Holme v Brunskill (1878) 3 QBD 495, that by tolerating the new occupier and failing to forfeit the lease for breach of covenant, the landlord had materially altered the risk borne by the claimant under the guarantee. Thus, the claimant was released from its liability under that guarantee. The judge gave summary judgment for the claimant. The defendant appealed.
Held: The appeal was dismissed.
The conduct of the landlord, in failing to take action to enforce the covenant against assignment when it had become aware that another occupant had taken possession of the premises and was paying the rent, fell within the proviso to the claimant’s guarantee. Any prejudice to the claimant resulted from a “forbearance” to enforce performance or observance of a covenant covered by the proviso, and so did not operate to release the claimant under the rule in Holme v Brunskill (1878) 3 QBD 495.
Charles Harpum (instructed by Nicholson Graham & Jones) appeared for the claimant; Jonathan Ferris (instructed by Sprecher Grier Halberstam LLP) appeared for the defendant.
Sally Dobson, barrister
