KEY POINTS:
I am a director of a company which signed a lease originally for five years. I personally guaranteed the lease.
My company assigned the lease a year ago while there was still 18 months of the term to go. Apparently the tenant to whom my company assigned the lease has left the premises and the landlord could not find a new tenant for several months.
The landlord is now demanding payment from me as guarantor for the lost rent and costs of finding the new tenant. Shouldn't the landlord go after the subsequent tenant or my company first, before demanding money from me under the guarantee?
You have not indicated which form of guarantee you have signed so we assume it is a commonly used Auckland District Law Society Lease (4th edition) guarantee or similar terms.
The ADLS guarantee provides that a guarantor is liable for the payment of the rent and the performance by the tenant of the lease terms.
As between the landlord and you, the guarantee also provides that the landlord can treat you for all purposes as "the tenant" without looking to deal first with your company.
If your company became insolvent during the lease term and could not pay the rent, the landlord could pursue you to cover any loss.
You say your company has assigned the lease to a new tenant who has apparently left the premises. Generally, your company as original tenant and you as the guarantor remain liable for the full term of the lease (or until the lease is terminated) regardless of any assignment. The ADLS guarantee expressly provides that any assignment (and indeed any rent review) does not release a guarantor from liability. This liability will include damages suffered by the landlord such as, in this case, loss of rent and agency fees. You need to review the express wording of the guarantee you have signed to make sure of your position. In all cases, the wording of any obligation is crucial.
The "chain of liability" can sometimes be broken after an assignment.
For example, if the lease had been renewed by the new tenant since your assignment, generally a renewal of lease is a new lease.
If your liability was to continue during any renewed lease, the guarantee's wording would have to specify this was the case. Otherwise, your company and you would be released from your obligations.
But from what you have said, you are still in the original term and your landlord kept on the original lease at least until finding a new tenant.
Where there have been several "assignees" during the lease term, and the chain of liability has not been broken, the landlord will usually have the right to take action against any of the parties who signed or guaranteed the lease. These parties are jointly and severally liable for the obligations under the lease and for any loss suffered by the landlord as a result of any party failing to meet their obligations. The landlord will be able to recover the loss only once.
However, the landlord can choose to pursue whichever party is most likely to be able to make good any loss. This is the risk you take when guaranteeing a lease and when you remain a guarantor after assigning a lease.
If the landlord does make a claim against you as guarantor, it will be the landlord's "choice" of party to pursue. Your response is to consider the obligations of the failed tenant under the assignment and the lease.
Of course, while you may have the ability to sue, this is of little comfort if the failed tenant is worthless or, having vacated, cannot be found.
