A recent High Court decision has found that where a guarantor is obliged to step into the shoes of a defaulting tenant and take a new lease on the same terms as the original lease, the restriction on upwards-only rent reviews (which applies to all leases entered into after February 2010) will apply to the new lease. This is regardless of the fact that the guarantee was entered into prior to February 2010 and the original lease contained an upwards-only rent review.
A lease entered into in 2007 contained a guarantee which provided that, in certain specified situations and if so requested by the landlord, the guarantor would enter into a new lease on the same terms and conditions as were contained in the 2007 Lease. One of the specified events occurred and in 2011 the landlord called upon the guarantor to enter into a new lease. The 2007 Lease contained an upwards-only rent review clause and a dispute arose between the landlord and the guarantor in relation to whether an upwards-only rent review clause should be included in the new lease to be entered into by the guarantor.
The landlord argued that when the guarantee was entered into in 2007, an agreement for lease was created and submitted that the rent review legislation should be construed so as to avoid any retrospective effect. However, the Court held that the legislation specifically stated that it would not apply to either existing leases or existing agreements for lease but that in this case, until the contingency occurred that allowed the landlord to call upon the guarantor to enter into a lease, no agreement for lease existed.
Contributed by Ruth Sheridan.
