Gunne Estate Agents (plaintiff) v Pembroke Estates Management Limited (defendant).

Landlord and Tenant - Assignment of lease - Consent to assign - Guarantor of lease required - Landlord required guarantor to act as principal obligor and not merely as surety - Use of guarantee set out in precedent book - Whether form of guarantee sought by landlord unreasonable - Whether landlord had unreasonably refused consent to assign lease.

The Circuit Court (before His Honour Judge Buckley); judgment delivered on 15 May 2000.

The court would consider all the relevant facts of the case in deciding whether it was reasonable for a landlord to demand that a guarantor of a lease be jointly and severally liable for the performance of covenants and conditions contained in the lease.

Judge Buckley so held in stating that in the present case such a guarantee was not suitable and declaring that the landlord had accordingly unreasonably refused consent to the assignment of the lease.

John Gordon SC and Robert Barron BL for the plaintiff; John Farrell SC and Angus Buttinshaw BL for the defendant.

His Honour Judge Buckley outlined the facts of the case. The plaintiff had been a tenant of premises situated at 176 Pembroke Road, Ballsbridge, Dublin 4. The plaintiff had decided to relocate its business and accordingly decided to dispose of its leasehold interest. The disposal was subject to the consent of the landlord ("the defendant"). The plaintiff had arranged to sell the lease to a company by the name of Cellular Connections Limited. Cellular Connections Limited was a recently formed company with a short trading history. In this regard the plaintiff had conceded that the defendant would be entitled to seek a guarantor for the payment of rent and for the performance and observance of the covenants and conditions by the tenant contained in the lease. Cellular Connections Limited was an agent of Eircell Limited and Eircell Limited had indicated its willingness to act as a guarantor for Cellular Connections Limited.

Judge Buckley stated that both the plaintiff and the defendant had thereupon attempted to agree on a form of guarantee. However the parties failed to agree upon an acceptable form of guarantee and accordingly the plaintiff issued an equity civil bill on 21 January 2000 seeking a declaration that the defendant's refusal to consent to the assignment was unreasonable. The plaintiff sought an injunction seeking such a declaration or in the alternative dispensing with the necessary consent and also submitted a claim for damages. The defendant denied the claims of the plaintiff and required that the guarantor be jointly and severally liable with the proposed assignee.

Judge Buckley then discussed the various differences between the respective guarantees. The defendant's guarantee required that the assignee and guarantor jointly and severally perform and observe the covenants in the lease. The guarantor also was not afforded any "days of grace" in relation to the performance of the guarantor's obligations. The form of guarantee submitted by the plaintiff provided that the guarantor would act as a surety and not as a principal obligor. In addition the plaintiff's guarantee provided that the landlord could not serve a demand on the guarantor until 30 days had elapsed from the service of a written demand on the tenant. Following such a service on the guarantor, the guarantor would have ten business days within which to perform its obligations in respect of the payment of rent and 45 business days in respect of other obligations. Judge Buckley noted the most recent statements of the applicable law as found in the cases Wanze Properties (Ireland) Limited v Mastertron Limited [1992] ILRM 747 and OHS Limited v Green Property Limited [1986] ILRM 451. In the latter case Mr Justice Lynch had stated that "the onus is on the tenant to establish that the landlord is unreasonably withholding its consent. Some of the cases would suggest that in order to do this, the tenant would have to show that the landlord was acting capriciously or arbitrarily but each case must depend on its own facts." Judge Buckley referred to the argument advanced by Mr Farrell SC on behalf of the defendant that the form of guarantee suggested by the defendant's solicitor was one as adapted from the Irish Conveyancing Precedents. Judge Buckley was of the view that the inclusion of the said guarantee in a book of precedents does not imply that such a form has won general acceptance. In addition Judge Buckley declined to allow counsel for the defendant leave to adduce evidence from a well-known English text-book on the matter, Hill & Redman. It was Judge Buckley's view that there were differences in the law of landlord and tenant between Ireland and England. In this regard the judge referred to the significant differences between the provisions contained in section 16 of Deasy's Act releasing tenants from their obligations following a permitted assignment and those contained in the Landlord and Tenant Act 1995 in England.

Judge Buckley stated that on first reading the guarantee as proposed by the defendant it appeared as a draconian one. Judge Buckley was of the view that this form was in fact intended to be used in a lease containing a joint and several guarantee. In the present circumstances the inclusion of a joint and several guarantee in the lease would be unreasonable. This would oblige the guarantor to comply with the covenants in the lease , other than the payment of rent, without being given notice of the default by the tenant. Such an obligation might be reasonable where the guarantor was a director of the assignee company and likely to be in regular contact with the demised premises. It was not however suitable to expect a third party guarantor to monitor the day to day operations of a tenant in such a fashion. If the joint and several liability were to be imposed the guarantor would not be entitled to any days of grace and this was unreasonable.

Judge Buckley held that the landlord had unreasonably refused consent to the assignment of the lease. Damages would not however be awarded and the tenant should pay any outstanding gales of rent.

Solicitors: Gleeson McGrath Baldwin (Dublin) for the plaintiff; Moore Kiely & Lloyd (Dublin) for the defendant.

[This decision is under appeal to the High Court.]