02 October 2024
3 min read
#Property, Planning & Development, #Dispute Resolution & Litigation
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The issue of whether personal guarantees continue to apply following the termination of a lease and creation of a monthly tenancy was recently addressed in APlus Capital Pty Ltd v Kontomichalos [2024] VSC 546 on appeal from a decision of the Victorian Civil and Administrative Tribunal (VCAT).
On 20 September 2022, senior member Forde of the VCAT dismissed APlus' counterclaim, ordering it to pay $209,395.67 to the landlord. SM Forde held that:
On appeal, APlus’ guarantors argued that their guarantees were only applicable to the original leases, not the monthly tenancies. This was swiftly rejected by Ginnane J. Upholding the Tribunal’s decision, His Honour held that:
This case illustrates the importance of the context in which a guarantee is entered, particularly the surrounding circumstances known to both parties at the time of the transaction. The terms of a guarantee will determine whether the liability of the surety extends beyond the expiration of an agreement.
Leases commonly include clauses about continued occupation after the lease expires or is terminated. Guarantors should be aware that such obligations are likely to be captured in well-drafted guarantee provisions. Landlords should ensure their guarantee provisions are drafted to capture the entirety of any occupancy of the tenant.
For tenants: absent express provisions, this case reinforces that it is highly likely that a failure to pay rent will amount to a repudiation of the lease. Withholding rent carries significant risks and should only be pursued with caution, ideally with the guidance of expert legal advice and strategy.
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