Construction — Lease of commercial properties — Sureties seeking to be released from obligations — Tenant serving notice of sureties’ release — Whether release conditional upon provision of substitute sureties — Judgment for landlord
The landlord sought a declaration against the first defendant, the tenant, and eight named individuals, who were partners in a firm of solicitors as surety. The tenant was the service company of the solicitors’ firm. The premises were a block of offices fronting on to Great Portland Street, London W1, used by the firm as their offices and the lease, from November 1989, was for a term of 25 years at an initial rent of £825,000 pa with upwards-only reviews. By clause 7(10), if the tenant was to serve notice indicating that one or more surety was to be released or if any one should die “then they shall be fully and effectually released from all obligations… and the landlord shall forthwith upon request by the tenant enter into a formal deed of release … provided always that where such release is sought … then the tenant shall procure for the landlord such person as shall be required to act as substitute guarantor … and such substitute shall simultaneously enter into a direct covenant with the landlord …” .
In December 1992, the tenant served notice that the sureties were effectually released from their liabilities from the date of the notice. The tenant contended, inter alia, that the service of the notice operated to release the sureties with the result that a failure to provide substitutes constituted a breach of its obligation and that remedy for such a breach was to forfeit the lease. The landlord contended that the release of surety pursuant to a notice did not come into effect until a substitute had been provided unless the landlord agreed to a waiver.
Held Judgment for the landlord.
1. The provision for release by notice and the obligation on the tenant to find a substitute were inextricably linked. Moreover, a further significant link was to be found in the words “simultaneously and upon the completion of the deed of release …”; those words indicated clearly an intention that the substitute surety should enter into the required direct covenant with the landlord at the same time as the landlord executed a deed of release in respect of the original surety.
2. In turn that indicated that service of a notice was not intended to operate automatically as a release.
3. Further, it did not accord with business common sense that a lease which on the one hand required the presence of sureties for the tenant’s obligations should at the same time allow, as a matter of drafting, for a situation where the lease could continue on foot without any sureties at all.
4. Moreover, if the defendant’s construction was right the timing of any forfeiture was in the hands of the tenant so that consideration of business common sense reinforced the conclusion that the landlord’s construction was correct.
Joseph Harper QC (instructed by Speechly Bircham) appeared for the plaintiff landlord; Alan Steinfeld QC (instructed by Finers) appeared for the defendant tenant.
