Guarantees, Deeds and Consideration

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    Guarantees, Deeds and Consideration

    Does a guarantee need to be a deed?

    Section IV of the Statute of Frauds (1677) as amended reads as follows:

    Noe Action shall be brought whereby to charge the Defendant upon any speciall promise to answere for the debt default or miscarriages of another person unlesse the Agreement upon which such Action shall be brought or some Memorandum or Note thereof shall be in Writeing and signed by the partie to be charged therewith or some other person thereunto by him lawfully authorized.

    So at least one thing is clear: a guarantee needs to be in writing. I shall leave consideration of what constitutes “writing” for another day.

    But does it need to be a deed?

    So far as I am aware there is no case on the point.

    The argument for a deed is that a promise made without consideration needs to be made by deed. “Consideration” here has a technical meaning as to which see http://en.wikipedia.org/wiki/Conside...in_English_law It will be noted that a nominal consideration is sufficient. It would seem therefore that a guarantee given “In consideration of the sum of one pound paid by the Landlord to the Guarantor” obviates the need for a deed.

    The argument that a deed is not required if there is no consideration simply points to the wording of the Act and insists that the sole requirement is that the guarantee is in writing. A further argument is that, it being shown that the guarantor had the intention to be bound and that the landlord granted the tenancy relying on the guarantee, the guarantor ought not to be let off the hook on a technicality. “Equity regards as done that which ought to have been done.”

    Whatever the position may be, a landlord can avoid argument if he ensures the guarantee is executed as a deed. The snag is that where an agent is involved the agent cannot, without committing an offence, prepare a guarantee to be executed as a deed. However, the way round that would seem to be to draw up the guarantee expressing it to be made “In consideration of the sum of one pound paid by the Landlord to the Guarantor”.

    I have raised the question of whether a guarantee given for a nominal consideration is enforceable here.

    I emphasise that getting the guarantee in the correct form is only one aspect of making sure it is enforceable.

    #2
    I know that a Deed of Guarantee (DoG) needs the following
    1) A valid witness for the signature
    2) Executed and delivered as a deed
    3) The guarantor must receive a copy of the AST before agreeing to its terms in the deed.
    4) To be valid in court

    Although a DoG created by the landlord does not require Consideration (the landlord agreeing to the tenancy), is it a good idea to include this in the deed as the Consideration or is this irrelevant? If so, would the date of the Deed then be permissible to be before the AST signing date and before the tenancy start date because of the Consideration in the deed?

    Comment


      #3
      abp1,IMO LC is questioning your, and others, knowledge on Guarantees.
      Your profile and low post does not suggest any special expertise, neither does mine. IMV it is best to adhere to recent legal precedents, as it would take someone with deep pockets to test the 1677 Act in the Court of Appeal/Supreme Court.
      My preferred stance is that a G is liable for T debts for duration of AST & subs SPT without early release. As for post-signed AST Gs eg T was asked for deposit, not paid, then offered provision of G after T commenced, then that G should be liable for current T liabilities.
      Too often Gs are being accepted with no recoverable assets eg property owner or unemployed. Gs should only be accepted if they have something to lose eg CCJ and credit rating as min. These days many Gs seem to rely on PPI et al mis-selling culture for avoidance of liability, ' agreed for a now ex-friend' or 'can no longer afford to pay anothers debts overwhich I have no control'. If you don't want to risk it, don't sign as G. simples

      Comment


        #4
        Consideration is the easy bit to get right - far more difficult is drafting the document so as to effectively exclude the common law defences to liability that a guarantor can take advantage of. I would suggest all landlords who want to ensure they have awatertight guarantee have a good solicitor draw it up - if you have to use it then it will be worth every penny.
        Disclaimer:

        The above represents my own opinion, derived from personal knowledge and should not be relied upon as definitive or accurate advice. It is offered free of charge and may contain errors or omissions or be an inaccurate opinion of the law. I accept no liability for any loss or damage suffered as a result of relying on the above.

        Comment


          #5
          Originally posted by bhaal View Post
          Consideration is the easy bit to get right - far more difficult is drafting the document so as to effectively exclude the common law defences to liability that a guarantor can take advantage of. I would suggest all landlords who want to ensure they have a watertight guarantee have a good solicitor draw it up - if you have to use it then it will be worth every penny.
          Unfortunately I have found some solicitors who do not follow Housing Law to any great degree have slipped up by just drafting a "Guarantor Agreement" that does not require it to be witnessed nor executed as a Deed. There is ample scope to find a good Deed of Guarantee agreement on the internet with a bit of research, but what Lawcruncher has stated needed to be said.
          The advice I give should not be construed as a definitive answer, and is without prejudice or liability. You are advised to consult a specialist solicitor or other person of equal legal standing.

          Comment


            #6
            Originally posted by apb1 View Post
            If so, would the date of the Deed then be permissible to be before the AST signing date and before the tenancy start date because of the Consideration in the deed?
            I started a thread on this topic a few days ago but the detailed response from Lawcruncher (thank you sir) was a lot for me to digest so I have not replied yet. One of my queries was that above. Deed or not, if the guarantor is provided with a specimen copy of the AST including names of tenants and start and finish dates of the proposed tenancy, I cannot see any reason why they cannot guarantee something that will start at a planned date in the future. Even though the AST has not been granted yet and does not exist yet they are guaranteeing precisely that which will come into existence as planned. Is that correct? Many thanks.

            Comment


              #7
              Originally posted by bureaucrazy View Post
              Deed or not, if the guarantor is provided with a specimen copy of the AST including names of tenants and start and finish dates of the proposed tenancy, I cannot see any reason why they cannot guarantee something that will start at a planned date in the future. Even though the AST has not been granted yet and does not exist yet they are guaranteeing precisely that which will come into existence as planned. Is that correct? Many thanks.
              It has to come down to how the guarantee is worded. If the guarantee is worded on the basis that a tenancy exists when it does not I think it is going to fail. In theory, I do not think there is a problem with guaranteeing an obligation that may come into existence after the guarantee is completed. However, if you are going to do that then you must make it clear what the obligations are.

              As I have said, though, there is no need whatsoever to go in for complications. You just gather all the documents together and complete them on the same day. It will be deemed that the guarantee is completed a scintilla of time after the tenancy agreement is concluded.

              Comment


                #8
                The guarantor must receive a copy of the AST before agreeing to its terms in the deed
                Yes...and no.

                The "no" part is that a deed is an instrument in solemn form. There is a presumption that the parties have considered it carefully before signing it. They are saying: "We really mean this, we really, really do." That means that a deed is not easily rebutted. If you have signed a deed referring to another instrument there is a presumption that at the very least you were made familiar with its contents.

                The "yes" part is that the courts look very carefully at arrangements where someone undertakes obligations without obtaining any benefit. Despite what is said in the previous paragraph, the courts are sufficiently pragmatic to realise that many, if not most, people are unaware of the full significance of executing a deed. They require that, though a man may make an unwise decision, he should not be allowed to make an uninformed one. They will therefore look carefully into the circumstances leading up to the execution of a guarantee, whether made by deed or not.

                Comment

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