A Gold Coast landlord has lost a bid to recover unpaid rent after the exercise of a renewal option becausean assignment deed did not sufficiently extend the obligations of a personal guarantor.
Kevin Cross guaranteed his company’s obligations when in May 2009, it took over the balance of the lease of industrial premises that expired in February 2011. The lease included a three-year option.
That was accomplished by way of a written assignment of lease from the first tenant. It released Konstantino Green as original guarantor and bound Cross to “pay to the Landlord upon demand all monies payable by the Tenant under the Lease or this Deed on and from the Assignment Time.”
The company exercised its option in March 2011 and a Lease Renewal Deed – that provided for the extension of the personal guarantee – was prepared, but never signed.
Not long after the renewal date, the company fell into arrears prompting owners Murstaff Industries P/L and the Stafford family to sue in the Southport Magistrates Court.
Cross immediately filed for summary dismissal of the landlord’s guarantee claim, contending that his personal obligation expired with the original lease term.
Despite the magistrate construing the assignment document bound Cross to a “confined” obligation that was less extensive than that agreed to by the original guarantor, she refused the dismissal application.
On appeal to the District Court, Judge Michael Rackemann’s decision was delayed by six months due to illness.
Judge Rackemann rejected the landlord’s contention that the lease definition of “Term” – extending as it did to option periods – could be carried over to aid interpretation of the Assignment, because the word appeared nowhere in the relevant clause.
“Clause 7.3 could easily have been drafted to extend to money payable throughout the ‘Term’ but that is not what it provides,” wrote the judge. “There was nothing in the clause which engaged the defined meaning of the word”.
In an argument that approached the absurd, the landlords by asserting the expression “failure to comply with any term or condition of the Lease” was sufficient to carry over the defined meaning of “Term”.
“That is of no assistance,” ruled the judge who noted that the word could not be converted from one usage that “obviously describes an obligation” to another that is descriptive of duration.