Basch v Stekel & Anor

An individual’s contractual obligations generally bind his estate after death, subject to the assets in the personal representatives’ hands. Clear contractual language is required to displace that rule. A clause identifying a guarantor does not, without more, restrict the enforcement of the guarantor’s obligations against his estate.

Following disclaimer of a lease by a company’s liquidator, the disclaimer determines the company’s interest and liabilities but does not ordinarily affect the liabilities of a guarantor. A landlord’s notice requiring the guarantor’s estate to take a new lease is not, of itself, an act of taking possession or conduct inconsistent with enforcing the guarantor’s obligations under the former lease.

The landlord granted a commercial lease to North Lodge Garages and Services Ltd, guaranteed by Edmund Stekel. The lease required the guarantor to meet the tenant’s covenants and, if the tenant’s lease was disclaimed following liquidation, to take a new lease for the residue of the term.

Stekel died and his executors obtained probate. After the company entered liquidation and the liquidators disclaimed the lease under section 178 of the Insolvency Act 1986, the landlord required the executors to take a new lease. They refused. The County Court held that the guarantee was personal to Stekel and did not bind his estate, and dismissed the claim.

The landlord appealed. By the time of the appeal, specific performance was no longer pursued, and the central questions concerned liability for rent under the former lease and whether the landlord’s notice had ended or displaced that liability.

1. Appeal allowed. The guarantee obligations bound Stekel’s estate, subject to the ordinary limitation that personal representatives were liable only to the extent of assets in their hands.
2. The proper question was not whether the contractual definition of “Guarantor” extended to the personal representatives. It was whether the lease contained a sufficient intention to displace the general law that a deceased contracting party’s estate remains liable for contracts made during his lifetime. Clauses 3.1 and 3.4 served different drafting purposes and did not evidence any intention to restrict that general rule.
3. The court considered the effect of disclaimer under section 178 of the Insolvency Act 1986, following the explanation in Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70. A disclaimer determines the company’s interest and liabilities, but does not, except so far as necessary to release the company, affect the rights or liabilities of other persons. The landlord may therefore continue to enforce the guarantor’s liability.
4. The landlord’s notice requiring the executors to take a new lease was not an act of taking possession. It asserted that the landlord was ready and able to give vacant possession when the new lease was granted. Nor was the notice inconsistent with enforcing the covenants under the former lease. Clause 8 provided alternative methods of enforcement, and the new lease was to contain covenants identical to those in the former lease.
5. The claim for specific performance was no longer pursued. The claimant obtained judgment for rent from 25 March 1998 to 22 October 1999, with interest under the applicable rate under the County Courts Act. No order was made for insurance moneys or rates, subject to the stated seven-day opportunity for agreement. The appellant received the costs of the appeal, and the order below was set aside with no order for costs in the County Court.

• Central London County Court: His Honour Judge Simpson dismissed the landlord’s claim on 27 November 1998, holding that the guarantor’s obligation did not survive his death and was not enforceable against his estate.
• Court of Appeal (Civil Division): The appeal was allowed. The estate remained liable for the guarantor’s contractual obligations, and judgment was entered for rent for the relevant period.