Retail Leases Update: Be Sure of Your Guarantor

By Paul O'Connell October 24, 2019

We thought that you may be interested in a recent case at VCAT concerning a purported guarantor to a retail lease.

The case of interest is DJM Group Pty Ltd v Calypso Sports Pty Ltd (Building and Property) (2019) VCAT 325(8 March 2019) which you can read reported here.

The subsequent hearing held in September 2019 addressing costs can be read here.

retail_leases_act_update

In summary:

  • Landlord, DJM Group Pty Ltd, leased a retail premises located in Thomastown to tenant, Calypso Sports, for use as an indoor sports centre.
  • When the two business partners of the tenant company decided to part ways, the Landlord was prepared to provide a new lease on the basis that the fiancé of the remaining business partner, Mr Hall, would become the “replacement guarantor”.
  • The “replacement guarantor” was not present at this meeting and was not copied into any preceding email correspondence about the matter. The new Lease document was sent directly and only to Mr Hall.
  • In April 2016 a Deed of Surrender was signed, releasing the “old guarantor” of his obligations and a new Lease was allegedly signed with Mr Hall and his fiancé, Ms Lloyd, as co-guarantors.
  • The landlord re-entered the premises due to non-payment of rent in March 2018 and instigated VCAT proceedings against the tenant company and the alleged co-guarantors to recover $190,329 being amounts due under the lease plus damages.
  • Ms Lloyd claimed her relationship with Mr Hall came to an end in February 2018 and that her signature had been forged by Mr Hall on the lease documents.
  • The landlord claimed the co-guarantors were in collusion and deliberately attempting to avoid Ms Lloyd’s liability.
  • The hearing established that Ms Lloyd had not signed the lease and had no knowledge of being a guarantor. The landlord’s claim against her was dismissed.
  • Calypso Sports and Mr Hall were ordered to pay $156,317 to the landlord.
  • After an unsuccessful claim for the Landlord to cover her legal costs, Ms Lloyd then applied for a costs order against Mr Hall in the sum of $51,789. Her application for costs was successful on the basis that Mr Hall failed to attend mediation and the VCAT hearings.

There are a number of takeaways from this case:

For tenants.

Being involved, even indirectly, in the running of a business can expose you to fraudulent activity and defending a claim against you can be very expensive.

For landlords.

  1. Ensure Guarantors have fully signed and clearly printed their names. Equally ensure witness signatures and printed names are legible so you can identify them.
  2. Prior to signing a lease, properly verify the identity of the guarantors and ensure that there is communication, such as an email exchange, with all individual guarantors confirming their agreement to sign.
  3. Costs under section 109 of the Victorian Civil and Administrative Tribunal Act 1998 are rarely awarded. You can review the circumstances where costs are payable here.

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Paul O'Connell

Written by Paul O'Connell

Paul brings a broad range of skills and experience having held roles in the Commercial Property Industry as a Finance Broker, Sales & Leasing Consultant and Property Manager.

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