Landlord and tenant — Lease containing covenant of guarantee — Licence to assign permitted lessor to enter and carry out external improvements — Whether covenant of guarantee disentitled guarantor from being released from obligation to pay rent
By a lease
dated June 25 1979, to which the defendant was guarantor, premises were demised
for 20 years from March 25 1979 at an initial yearly rent of £22,500. The
plaintiff owns the reversion. Under clause 10(1) of the lease the defendant
covenants, inter alia, to pay the rent and perform the lessee’s
covenants during the term ‘notwithstanding … any other act or thing whereby but
for this provision the Guarantor would have been released’. By clause 3 of a
licence to assign dated January 4 1990 the lessor was permitted to enter the
premises to make external improvements and provide external cladding. The
lessee having incurred some £129,750 arrears of rent, the plaintiff claimed the
same under clause 10 of the lease from the defendant. The defendant contended
that by clause 3 of the licence it had been released from its covenant of
guarantee, because the licence imposed on the lessee (and therefore the
guarantor) a burden additional to the lease, and that the concluding words of
clause 10(1) did not prevent such release. The plaintiff appealed from the
decision of the master dismissing its claim.
was that the guarantor should guarantee the performance of the covenants of the
lease and not those which might be contained in some other document. The
concluding words of clause 10(1) were concerned with events arising under the
lease and did not cover additional burdens created by documents other than the
lease.
The following
cases are referred to in this report.
British
Motor Trust Co Ltd v Hyams (1934) 50 TLR 230
Credit
Lyonnais (Australia) Ltd v Darling [1991] 5
ACSR 703
R v Payne (1866) LR 1 CCR 27
This was an
appeal from the decision of Master Moncaster, who had dismissed summons’ issued
by the plaintiff, West Horndon Industrial Park Ltd, under RSC Ords 14 and 14A
claiming arrears of rent from the defendant, Phoenix Timber Group plc.
Anthony
Radevsky (instructed by Talfourds, of Hornchurch) appeared for the plaintiff;
David Neuberger QC and Charles Morrison (instructed by Bishop & Sewell)
represented the defendant.
Giving
judgment, Mr Roger Kaye QC
said: By a lease dated June 25 1979 (the reversion of which is now vested in
the plaintiff) and made between Tesna Properties Ltd, as landlord, Hardwood
Components (Horndon) Ltd, as tenant, and the defendant as guarantor, the
landlord demised to the tenant premises at Unit 13, Industrial Park, West
Horndon, Essex, for a term of 20 years from March 25 1979 at the yearly rent
(subject to review) of £22,500 payable in advance on the usual quarter days.
The relevant
provisions in the lease to which I should refer seem to me to be these.
By clause 4 of
the lease, dealing with the rent review provisions, the reviewed rent is to
disregard improvements carried out by the tenant. By clause 5(1), (2), (3),
(19) and (23) the tenant covenanted to pay the rent, rates and other similar
outgoings, insurance moneys and service charges, together with interest on any
arrears as therein set out. By clause 5(5) and (6) the tenant was obliged to
keep the whole of the demised premises in repair and to decorate inside and
out. By clause 5(9) the tenant was not to assign the whole without consent. By
clause 5(11) the tenant was to permit the landlord entry for the purposes of
developing neighbouring property or the industrial park in accordance with
clause 6(5). By clause 5(12) and (13) the tenant was to permit the landlord
entry to inspect for any purpose and for the purposes of repair.
Clause 10 of
the lease contained covenants by the defendant as guarantor and provides as
follows:
(1) That if
the Tenant shall make any default at any time during the term (as hereinbefore
defined) in payment of rent or in observing or performing any of the covenants
or restrictions herein contained the Guarantor will pay the rent and observe or
perform the covenants or restrictions in respect of which the Tenant shall be
in default notwithstanding any time or indulgence granted by the Landlord to
the Tenant or that this lease may have been assigned or that the Tenant may
have ceased to exist or any other act or thing whereby but for this provision
the Guarantor would have been released.
(2) That if
this lease shall be disclaimed the Guarantor will if the Landlord shall by
notice in writing within two months after such disclaimer so require take from
the Landlord a lease of the demised premises for the residue of the term which
would have remained had there been no disclaimer at the same rent and subject
to the same covenants and restrictions as in this lease with the exception of
this clause such new lease to take effect from the date of the said disclaimer
and in such case the Guarantor shall pay the costs of such new lease and
execute and deliver to the Landlord a counterpart thereof.
From March 25
1989 the passing rent rose to £56,000 and the rent due for review on March 25
1994 has not yet been assessed.
It is common
ground that the tenant was and is in default of his obligations under clause 5
to pay the rent and other charges since March 25 1992. The current arrears of
rent as at the date of the writ in this case was some £129,750 odd, to which is
added a claim of some £16,400 odd by way of interest. The plaintiff therefore
contended and contends that the defendant guarantor is liable for these sums
under clause 10 of the lease.
The defendant,
however, contends that it is not so liable. Its defence arises in this way. The
lease was first assigned by a company called Plasitfurn Ltd, who in turn
assigned it to a company called Liebside Ltd pursuant to a licence to assign
made on January 4 1990 between the then reversioner, Bartlett Land plc,
Plasitfurn Ltd (the then lessee), Liebside Ltd (the proposed assignee), and a
fourth party being the proposed assignee’s guarantor. I shall refer to this
document hereinafter as ‘the licence’.
By clause 3 of
the licence it was provided:
In
consideration of the Lessor’s consent hereinbefore obtained the Lessee hereby
grants unto the Lessor the right at any time during the term created by the
aforesaid Lease to enter upon the demised premises for the purpose of carrying
out at the Lessor’s own cost external improvements thereto being part of an
estate improvement scheme including in particular but without prejudice to the
foregoing external cladding to the walls of the demised premises provided
always that in exercising such right the Lessor will make good any damage
caused to the demised premises and cause as little inconvenience as possible to
the Lessee its employees or agents and will carry out such improvements and
cladding in a good and workmanlike manner.
It is also
common ground that this clause conferred on the landlord a right of entry wider
than the terms previously contained in the lease to which I have already
referred. The defendant contends that the effect of this clause was to release
its obligations as guarantor under clause 10 of the lease because, in effect,
it amounted to imposing an additional burden on the tenant (and thereby on the
surety) additional to those contained in the lease. I shall have to return to
clause 3 of this licence in a moment.
The defendant
having refused to pay the sums due, the plaintiff issued a writ on August 4
1994 claiming the arrears and a declaration that the defendant’s covenants
under clause 10 of the lease are enforceable throughout the term of the lease.
The defendant served a defence denying liability, broadly for the reasons that
I have mentioned. It is common ground that the issue between the parties is one
of law, namely are the guarantor’s liabilities under clause 10 preserved
notwithstanding clause 3 of the licence? If the effect of the concluding words
of clause 10(1) is not to release the defendant from its obligations as surety
under the lease then the plaintiff must succeed. If the concluding words of
clause 10(1) do not preserve the surety’s liability then the defendant must
win. In short, the issue between the parties concentrates upon the meaning or
effect of the words in clause 10(1) ‘or any other act or thing whereby but for
this provision the Guarantor would have been released’.
On November 1
1994 the plaintiff issued a summons seeking summary judgment under Ords 14 and
14A, very properly raising these issues of construction. On January 6 1995
Master Moncaster resolved that issue in favour of the defendant and dismissed
the action. The plaintiff now appeals and it is that appeal which is now before
me.
This case has,
if I may say so, been very well and very economically argued, but all the
relevant points have I think been put. It is conceded, rightly in my view, that
clause 3 of the licence viewed as at the date of the licence went wider than
any provision contained in the lease, and therefore potentially affected the
defendant guarantor so as to be sufficient prima facie to release it.
This is, of course, but an application of the principle that, unless expressly
provided for or expressly consented to by the surety, any material alteration,
variation or addition to the terms of the contract between the principal debtor
and the creditor potentially prejudicial to the surety will discharge that
surety. But, the plaintiff argues, as I have said, the effect of the concluding
words of clause 10(1), namely that the guarantor will pay the rent and so forth
notwithstanding ‘any other act or thing whereby but for this provision the
Guarantor would have been released’ is precisely the type of express provision
which is sufficient to preserve the defendant’s liability.
I have been
helpfully referred to a number of authorities, but it is, in my view, always
dangerous in cases of construction to place too much reliance on authoritative
examples of words or phrases used in the documents in those cases. Ultimately,
and somewhat tritely, each case of course depends upon its own facts and its
own documents. The task of the court of course is to ascertain the intention of
the parties at the time they entered into their written agreement and to
ascertain that intention from the wording of the document viewed as a whole,
concentrating of course on the words of particular relevance in the case.
Essentially therefore the material words in this case, ie the concluding words
of clause 10(1), to which I have already referred, must therefore be construed
in the context in which they find themselves.
At the end of
the day, in my judgment, the defendant is entitled to succeed, as it succeeded
before the master, for the following reasons.
1. It is
axiomatic that contracts of guarantee are to be construed according to ordinary
canons of construction, but in cases of any doubt or uncertainty in favour of
the surety.
2. It seems,
however, plain to me on the true construction of clause 10 that what was
contemplated or intended by the parties as reflected in clause 10(1) was that
the guarantor should guarantee the rent and performance of the covenants or
restrictions ‘herein contained’, ie those contained in the lease and not those
contained or imposed by any other additional, extraneous or subsequent
document. It is noticeable that the licence did not on its face purport to vary
the terms of the lease but simply imposed an additional clause to which the
then tenant and proposed assignee agreed. The effect of clause 3 was, however,
as was accepted, potentially to increase and add to the burdens imposed on the
tenant by the lease in at least three ways: first, by increasing the potential
rent payable on review because the improvements under clause 3 of the licence
would not be disregarded under clause 4; second, in that the premiums of
insurance payable by the tenant under clause 5 of the lease are potentially
liable to be increased as a result of those improvements; and, third, by
increasing the tenant’s, and thereby the surety’s, repairing obligations in
consequence of the improvements. The plaintiff points out that no such burden
has in fact occurred to date. That, as he rightly accepts, is irrelevant,
however, to the present issue. The question is whether as at the date of the
licence clause 3 had then — not subsequently — the effect of releasing or
discharging the guarantor from its obligations under the lease.
3. Some
support for this view seems also to emerge, to my mind, from clause 10(2).
There the landlord is entitled to demand that the guarantor take a fresh lease
if the current lease has been disclaimed. Such new lease is to be ‘subject to
the same covenants and restrictions as in this lease with the exception of this
clause’. This subclause seems to me to imply two things: first, that in being
compelled to take a new lease the guarantor is thereby intended to be released
from any future obligations under the existing lease; second, that that new
lease (that is instead of and in place of his discharged obligations under the
existing lease) is to make the guarantor (that is now qua tenant) liable
for the same covenants and restrictions as subsisted in the existing lease. So
here too the guarantor could not be compelled to include in the new lease a
term such as is contained in clause 3 of the licence.
4. Reasons 2
and 3 seem to me to lead inevitably to the conclusion that the parties to the
original lease only intended that the guarantor’s obligations should extend to
those embraced by or contemplated by the terms of the original lease and not,
for example, additional or wider burdens of the type imposed by clause 3 of the
licence.
5. The
concluding words of clause 10(1), which I am urged to give a wide
interpretation were, however, in my judgment, intended to
words ‘any other act or thing’ were therefore, in my judgment, not intended to
cover the type of additional burden having the potential effect that clause 3
of the licence has in this case.
Clause 10(1)
was therefore not, in my view, intended to be, nor is it, a complete carte
blanche to entitle the landlord to extract every and any additional burden
from the surety. If it were so intended that any such additional burden should
be extractable from the surety then, in my judgment, it was necessary so to
have provided either expressly or by some clearer implication than is afforded
by those concluding words. I accept that they must be given some effect and
clearly were intended to imply something additional to the mere giving of time
or indulgence or assignment of the lease or the tenant ceasing to exist. But I
think Mr David Neuberger QC is right when he submits that what was contemplated
was that this should cover such cases as the landlord refusing rent in a case
where he wrongly believes there to be a breach of covenant or where, say as a
condition of an assignment, he has received security for the rent which he
subsequently releases. No doubt there are also other examples such as
forebearance or where the landlord has agreed for a time with the tenant that
the tenant might suspend payment of the rent for reasons best known to the
tenant or the landlord. I do not attempt an exhaustive category of cases
intended to be covered by those general words at the end of clause 10(1).
Suffice it to say that, in my judgment, they were not intended to cover and do
not cover the additional burden imposed by clause 3 of the licence.
I note, for
example, that the case of British Motor Trust Co Ltd v Hyams (1934)
50 TLR 230, to which I was helpfully referred, was a case where hire purchase
payments were guaranteed by the defendant under two hire purchase agreements
relating to two separate vehicles. In each of the agreements it was expressly
provided that the guarantee should not be avoided by any variation in the terms
of the agreement. Branson J held that the replacement of the old agreements
with a new single consolidated agreement covering both vehicles was a variation
contemplated by the original agreements and accordingly the guarantor was not
released. There, there was clearly the type of express provision which is
wholly absent from this case.
I was referred
also to the decision of the Supreme Court of New South Wales in Credit
Lyonnais (Australia) Ltd v Darling [1991] 5 ACSR 703. There the
guarantor of a financial facility was not to be exonerated under the provisions
of clause 8 of the guarantee, inter alia, by ‘any matter or thing which
under the law relating to sureties would but for this provision have the effect
of releasing the guarantor from his guarantee and indemnity or of discharging
his guarantee and indemnity’. The question was whether a subsequent variation
in the financial arrangements which had been consented to on behalf of the
sureties nevertheless had the effect of releasing the surety, and it was held
by that court on this particular point that the effect of clause 8 was that the
sureties were not released by that variation. But that seems to me to be a
different case in a different context and a much clearer and a much more
obvious example of the surety not being released. I note, for example, that the
opening words of clause 8 in that case were specifically that: ‘this guarantee
and indemnity shall be without prejudice to nor shall the guarantor be
exonerated in whole or in part nor shall the rights or remedies of the creditor
be in any way prejudiced or adversely affected by any of the matters
following’. Then one of the matters following was the words which I have
already quoted from clause 8. Those words seem to me to appear in a much wider
context and a much more different context than this case.
I was also
referred to the case of R v Payne (1866) LR 1 CCR 27. There the relevant
provision which was being construed was the Prison Act 1865, section 37, which
forbade the conveyance into any prison with intent to facilitate the escape of
a prisoner, of any ‘mask, dress or other disguise or of any letter or of any
other article or thing’. This case, as was Credit Lyonnais, was
urged upon me as support for the wide width to be applied to the concluding
words of clause 10(1) of the lease. In Payne it was held that a crowbar,
notwithstanding that it was vastly different from a ‘mask, dress or other
disguise or any letter’, was nevertheless included within the concluding
provisions, ‘any article or thing’, of section 37. I have absolutely no doubt
in my mind whatsoever that that was a just and right conclusion having regard
to the obvious purpose for which section 37 of the Prison Act 1865 was passed.
I do not think, however, it is necessarily of any assistance in the
construction of the words ‘any other act or thing’ in this particular case.
In the result
I dismiss the appeal.
Appeal
dismissed.
