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licence for alterations and releasing a guarantor

22 January 2014

The Court of Appeal has upheld a decision from last summer that a licence for alterations entered into without joining in a guarantor or obtaining its consent operated to release that guarantor.

This is based on the common law rule that a variation to a principal contract (without the guarantor’s consent) releases the guarantor unless it is self-evident that the variation was insubstantial or non-prejudicial to the guarantor.

The alterations covenant in this case was absolute (so no alterations were contemplated at the time the lease was granted). By giving consent to the tenant’s alterations, the landlord had potentially increased the burden on the guarantor (in particular, the alterations significantly increased the tenant’s repairing obligations). The guarantor had not consented to this and was therefore released from liability.

Whilst there is no new law here, the case is a useful reminder for landlords to ensure that they make guarantors a party to all licences, variations and supplemental lease documents.

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