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 difficulties was sufficient to place an obligation on
the landlord to take additional steps to satisfy itself of the
guarantor's willingness to provide the guarantee.
This places an additional burden on landlords seeking the
comfort of a guarantor. The House of Lords has laid out guidance as
to what banks should do to avoid undue influence and the same
guidance should apply to landlords by analogy. The landlord must be
certain that the guarantor understands the nature and consequences
of the guarantee and the guarantor should be afforded the option of
taking independent legal advice.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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