Case study in the context of lease agreement of commercial property
This essay examines two questions in a given case study in the context of lease agreement of commercial property. First, it advises the landlord to oblige the tenant to abide by the terms of the agreement and mend breaches of clause 6 and 7 of the agreement. Second, it advises the landlord to recover the rent unpaid by assignee from the Guarantor. The discussion is supported by statutory and case laws.
The nature of agreement between Lydia, the freehold owner of a building in the centre of Cardiff, and William’s is of fully qualified covenants. A fully qualified covenant allows the tenant to change the use of the premises to some other use with the prior consent of the landlord. The consent must be obtained in writing. Accordingly, a tenant is required to obtain permission from the landlord in order to change the business. A landlord is also required to give permission upon such request unless there are exceptional circumstances. The exceptional circumstances could be in the form of that the new usage of the property would damage the property or reduce the valuation of the property. In case, the landlord refuses his permission, the tenant has a right to challenge in the court. Similarly, if the landlord does not give permission within a reasonable time, then, the tenant may proceed with the change without further waiting for the permission. However, this is not a safer mode. It is always recommended that the tenant changes the nature of the business once he has written permission from the landlord. Accordingly, the tenant may apply to the court to intervene and get permission. This is a safer mode and is without risk. It is because the mode avoids the risk of litigation.
The circumstances in the instant case are the same as discussed above the theory. In this case, William wants to change the business; he must obtain permission from the landlord. He has not obtained permission from the landlord and has placed cycle machines and exercise machines on the shop. This is a significant change in the nature of the business, which may even clash with the planning permission. It is because the lease agreement only provided for the use of the shop for selling sports wears. William has included cycle and exercise machines which are not the same as sports wears. It is because sports wears are light and the cycle and exercise machines are heavier. The landlord may argue that this may damage to his property. Therefore, the landlord may require William to do stop selling the cycle machine and exercise machines.
The other issue here is that William is in breach of the tenancy agreement under clause 7. The clause says William is required ‘to keep the premises open as a sports’ wear shop from Monday to Saturday for a minimum of 50 weeks each year.’ This means that William is also in breach of this clause. The reduced opening of the shop results in the reduction of the value of the premises. It is because if William opens the shop for five days instead of 6 days, then, there will be reduced number of customers, which will have ultimate impact upon the value of the shop. Accordingly, William is required to abide by the terms of the agreement.
This is a case of the recovery of the rent from assignee. There are couple of agreement which are interconnected with one another. The first agreement is between Lydia and Brolly Ltd (Brolly) for the lease of the first-floor unit in 2000. The duration of the lease is for a term of 15 years from 25 March 2000. Brolly covenanted in the lease to pay an annual rent of £24,000 in advance on the usual quarter days. The other agreement is between the landlord and Brolly’s managing director, Gamp (the original guarantor), guaranteeing the payment of the rent by Brolly. This is a personal guarantee given by the Mr. Gamp. Then, there is another agreement between the landlord and the assignee Mr. Strut. This is a subletting agreement.
The first agreement provided for that in case the tenant wants to assign the property, he will enter into an authorised guarantee agreement (AGA) with the landlord. Accordingly, Brolly has entered into such an agreement. The law is that if a person stands as a guarantor for future payments of assignees, he is liable for all duration of the lease. Accordingly, Brolly is liable for payment of the rent to the landlord, Lydia. Mr. Gamp, is also liable in case Brolly fails to make payment on behalf of its assignee. It is because he stood surety for the payments of Brolly. However, it depends if the agreement of the guarantee is for the rent payments of Brolly, then, he may not be liable. Ideally, he should limit his guarantee to rent payments of Brolly but if he stands general surety, then, he is liable.
Lydia has now remedy either to sue assignee, Mr. Strut or Brolly. The concept of the abolition of privity of contract in leases applies equally to guarantors. Section 24(2) of the Landlord and Tenancy Act 1995 provides that where a tenant is released under the LTA 1995 from the tenant covenants of the lease any person who was bound before the release, by a covenant imposing liability upon that person in the event of default by the tenant, is released to the same extent as the tenant. Accordingly, any effort to extend the liability of a guarantor beyond the duration of the liability of the tenant whose performance was guaranteed is likely to fall foul of the anti avoidance provisions of s25 of the Act. This discussion shows that Lydia can still sue guarantor because Brolly has entered into a guarantee agreement, thereby, stood surety for Strut.
The essay examined the first issue that was the remedies for the breach of the tenant of clauses 6 and 7 of the lease agreement. The discussion revealed that the tenant is liable to landlord because the nature of the agreement is fully qualified lease agreement. Mr. Williams, tenant, did not obtain permission from the landlord before extending the scope of his business. Similarly, he did not obtain permission to close his shop on Monday. Accordingly, he is liable to pay damages and mend his ways. The second issue was about the recovery of unpaid rents from Guarantor, Mr. Gamp, who was surety for Brolly. It was revealed that he can be asked to pay unpaid rents as he is the ultimate guarantor in this situation.