Lease — Sureties guaranteeing rent — Landlord requiring rent deposit from tenant in supplemental deed — Sureties not party to supplemental deed although signing it — First instance decision that two documents to be read as one — Appeal by sureties allowed in part
The plaintiffs were the landlords of business premises at Unit 48, Riverside, Medway City Estate, Chatham, Kent. The first defendant was the tenant of an underlease (“the lease”) for 24 years entered into on December 16 1988. The other three defendants were sureties under the underlease of whom only two (Mr and Mrs O) were proceeded against. The annual rent was £13,650. There was a supplemental deed executed at the same time as the lease whereby the tenant deposited with the landlord £20,475 upon which the landlord could draw in default of payment of rent. Para II of the supplemental deed provided “save as hereby modified the lease shall continue in full force and effect in all respects”. On the last page of the supplemental deed were the signatures of Mr and Mrs O.
The landlords from the beginning had difficulty in obtaining the rent and the tenant ceased to trade. It was not disputed that the sureties were liable as far as arrears of rent were concerned but they resisted liability for the rent deposit and also counterclaimed that the landlord had unreasonably withheld consent to an assignment of the lease.
At first instance the judge found that (a) the landlords had not unreasonably withheld consent; and (b) although the obligation to pay the rent deposit did not appear in the underlease, but in the supplemental deed of the same date to which Mr and Mrs O were not parties (albeit executed by them), the two documents could be read as one (see the Law of Property Act 1925, section 58). The obvious inference was that they were signing as sureties and were guaranteeing payment of the rent deposit. In so far as there was a default in payment of the rent deposit, they were obliged to make good that default. In the first part of the fourth schedule to the lease, it stipulated that no variation to the terms of the lease “shall in any way release the obligations of the surety to the landlord”. The rent deposit had been entirely used up by the landlord in default of the rent. Mr and Mrs O appealed.
Held The appeal was allowed in part.
1. Although the landlords had argued that the variation to terms of the lease had not released the obligations of the sureties the supplemental deed did not bring about any variation to the lease. The obligations under the supplemental deed were more onerous than those under the lease itself.
2. Although the sureties had covenanted, in the underlease, to make good any losses resulting from the tenant’s default, that wording did not extend to an obligation found outside the lease. There was no obligation to make good defaults in the supplemental deed.
3. The court also rejected the judge’s ground, namely that under section 58 of the 1925 Act, the two documents were to be read as one and that, having executed the deed, an obvious inference could be drawn that the sureties guaranteed payment of the rent deposit. They could not be expected to assume obligations not spelt out. For the supplemental deed to have had that effect, it would have required the full recital of the covenants of the lease itself. The court was being asked to take a step which could not be taken and the sureties could not be asked to top up the rent deposit.
Anthony Connerty (instructed by Sinclair Roche & Temperley) appeared for the appellant sureties; Thomas Jefferies (instructed by Portner & Jaskel) appeared for the respondent landlord.
