Guarantors Not Always Guaranteed

As is well known, where the matrimonial home is offered as security for a loan, there can be "undue influence" where one spouse has "trust and confidence, reliance dependence or "vulnerability" and the other has "ascendancy, domination or control".

Recent case law has extended this principle to a guarantee of a tenant's covenants under a lease. Where there is undue influence, the guarantee may be unenforceable. A company employee (who was not a director) had signed a lease as guarantor, at the request of one of his company directors, without having been advised about the nature of the document or offered the opportunity to take legal advice.

The court held that the employee had established a defence on the basis that he was unaware of the true nature of the document but also that there had been undue influence.

To be successful in a defence of undue influence, the landlord must have had "constructive knowledge" of the undue influence. In this case, the landlord being aware that the tenant had financial...