Lockdown and Liability – Don’t let a Guarantor out

As a result of Covid-19, many landlords and tenants may be asking themselves whether rent is still due under a lease.

The Coronavirus (Scotland) Act 2020 changed the warning notice for pre-irritancy (pre-forfeiture) notices from 14 days to 14 weeks but it didn’t remove the tenant’s liability under the lease for rent.

It can be expected, however, that tenants may look to argue that the obligation under their lease to pay rent has been suspended due to the impact of coronavirus and the restrictions imposed by Government. This is therefore a fertile ground for disputes between landlords and their tenants.

Alternatively, a tenant might seek to delay payment of their rent to a later date in the hope that trading will have resumed before the deferred rent becomes payable.

What is the position, however, if the landlord has a guarantor?

This will depend on the terms of the guarantee.

If the liability under the guarantee depends on the tenant being obliged to pay the rent and not having done so, then it may be that the guarantee won’t be any more enforceable against the guarantor than the lease is against the tenant. The guarantor is likely to argue that as the tenant is not liable under the lease for the rent due to coronavirus – by saying the obligation to pay rent has been suspended, for example – there is therefore no obligation on the guarantor to perform in place of the tenant.

If, however, the guarantee provides that the guarantor will pay the rent where it is not paid by the tenant – for whatever reason – then the guarantor will likely be liable regardless of the reason why the tenant is not making payment. The key will be in the detail of the guarantee. To determine the strength of your hand against a guarantor, the focus should be on whether the guarantor’s liability under the guarantee depends on their being a breach of the lease by the tenant or simply a failure to pay.

Likewise, any landlord deferring rent to a later date must carefully consider the terms of the guarantee. If the guarantee allows landlords to give tenants additional time to pay sums due under the lease, it is unlikely the guarantor will have any ground of complaint.

If, however, there is no such right a guarantor may argue that their position has been, or even could potentially be, prejudiced by the deferral. This could ultimately result in the guarantor being discharged from liability under the guarantee.