The former directors of a food-service business who sold down their shares to a new operator have been sued for the buyer’s rent arrears under a personal guarantee they signed 20 years earlier in favour of the property’s former owner.
Anthony Rich acquired the Rocklea warehouse from West Pacific Properties in July 1998. Just two weeks earlier the vendors had granted a seven-year lease with a three-year option to Comet Foods, secured by guarantees from directors David and Maria Ridout.
The company’s option expiring in July 2008 was not validly exercised but it nevertheless remained in occupation.
The Ridouts sold their shares in the restaurant supplier and resigned their directorships in January 2008, thereby severing all connection is with Comet.
Rather than commit to a new long term lease, in June that year the new shareholders negotiated a monthly tenancy for the Abercrombie St facility that could be terminated on 3 months’ notice.
In exchange for that flexibility, they agreed to a rent increase of 15%.
With the onset of the GFC, the company went into arrears to the extent of $92k. It was wound up November 2011.
Rich made a demand on the Ridouts for the debt under their ancient guarantee, to which they naturally enough took exception.
The dispute eventually arrived in the District Court in Brisbane on appeal from a Magistrates Court decision that had ruled in favour of the landlord and ordered the guarantors to pay all the arrears plus $38k in interest.
Judge David Andrews had to rule on the reach of the guarantee which was expressed to operate in respect of monies that became payable during the term or any “renewal, extension or holding over” under the lease.
The parties were taken to have conceded – despite protests from the guarantors on the appeal – that the guarantee covenants “touch and concern the land” such that Rich was taken to have received their benefit on transfer of the reversion to him.
That said, Comet’s occupation after the option period expired and new ownership was in place – when the arrears were incurred – was, Judge Andrews concluded, of a different character to that under the lease and option period.
That debt arose from obligations that were different – a monthly tenancy with “more onerous rent” – to those in the lease to which the guarantee related, he decided.
But what of the “all monies” provision in the guarantee that purported to extend to “any monies whatsoever payable as between the Lessor and the Lessee”?
The court reasoned that the particular provision had to be construed as meaning “other monies” that “were within the contemplation of the original lessors and the guarantors when the guarantee was executed”.
“Strictly construed” – ie on a contra proferentem basis – no intent could be assumed on the part of the guarantors to “accept prejudicial changes to the terms” created as a result of the 2008 monthly tenancy.
The situation would have been different – noted his honour – had the guarantee referred to an obligation on the part of the guarantor continuing after the term “while the lessor continued to be a tenant or otherwise continued in possession or occupation” rather than restricting the obligation to “this lease”.