Effect of disclaimer on surety covenant

In RVB Investments Ltd v Bibby ([2013] EWHC 65) RVB granted two leases to CT. B, as surety, covenanted, among other things, to take a new lease for the residue of the lease terms if the leases were disclaimed. One lease was disclaimed by the liquidator and the other, after CT’s dissolution, by the Treasury Solicitors. RVB sought specific performance of B’s covenant to take new leases. RVB was successful.

As regards the lease disclaimed by the liquidator, the effect of section 178 of the Insolvency Act 1986 was that the guarantee remained alive even after disclaimer of the lease ([22] – [23]). The same was true of the lease that was disclaimed by the Treasury Solicitor after CT’s dissolution. The company’s own liability was brought to an end but not of the guarantor ([27] – [29]).

Nor was CT a ‘former tenant’ for the purposes of the Landlord and Tenant (Covenants) Act 1995 so there was no need for RVB to serve a notice before recovering any sums owed by CT to RVB ([35] – [36]).

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