Jonathan Arkush is a barrister at 11 Stone Buildings.
The House of Lords' decision in Hindcastle v Attenborough Associates is significant for its rejection of the long-standing Court of Appeal authority in Stacey v Hill (1901) 1 QB 660 which prevented a landlord from suing a guarantor for an original tenant who became insolvent while the lease was vested in him. The basis of that authority was that in that event the leasehold interest disappeared and with it any future liability of a guarantor for the tenant.
The House of Lords has now swept that doctrine away as being inconsistent with the disclaimer machinery in the Insolvency Act 1986.
The way is now clear for landlords to review their remedies against guarantors. In the event that the landlord has not re-entered or no vesting order has been made, it may be possible for the landlord to revive a claim against a guarantor which, in reliance on Stacey, he had given up as hopeless.
However, beware the time limits imposed by Section 17 Landlord & Tenant (Covenants) Act 1995, which apply to leases granted both before and after the coming into force of that Act on 1 January 1996; the landlord must make any claim for sums due before that date by 30 June 1996 while for sums becoming due after 1 January 1996 the claim must be made within six months.
Hindcastle has also made it less important for leases to contain an obligation on a guarantor to accept a new lease in the event of the failure of the tenant (a provision which was designed to circumvent the effect of Stacey).
However, terms such as this protecting a landlord are still advisable to impose a clear-cut contractual solution in preference to the uncertainty and cost which can be occur by vesting order applications.
The result has a certain piquancy. The appeal represented an attempt to alter the balance of the law in favour of original tenants who had assigned their leases and guarantors for such tenants.
However, the attempt did not merely fail, but altered the balance of the law even more in favour of landlords. For leases entered into after 1 January 1996, the picture is different as a result of the Landlord and Tenant (Covenants) Act 1995. But it may take the best part of the next century before many current leases have reached their expiry dates, and since Hindcastle's result is to introduce some long overdue coherence and fairness into the law, the decision is to be welcomed.