Topland Portfolio No 1 Ltd v Smiths News Trading Ltd

A surety is discharged by an unauthorised variation of guaranteed obligations where the variation is not self-evidently unsubstantial or incapable of prejudicing the surety. A licence permitting alterations can engage that rule where the alterations may enlarge the tenant’s repair, maintenance or yielding-up obligations, even if rent is unchanged. A contractual proviso concerning the landlord’s neglect, forbearance or giving of time is construed in context. Forbearance concerns tolerating an existing or apprehended breach rather than authorising conduct before any breach occurs. Giving time requires postponement of enforcement of an existing obligation. Such a proviso qualifies the rule in Holme v Brunskill; it does not generally exclude it.

Topland, the owner of commercial premises, claimed unpaid rent from Smiths, the parent company and surety of the insolvent tenant. Before the tenant’s insolvency, Topland’s predecessor had granted the tenant a licence to carry out substantial alterations without Smiths’ consent. The deputy High Court judge held that the licence varied the lease and had the potential to increase the tenant’s obligations, so the rule in Holme v Brunskill applied. She rejected the contention that the licence amounted to forbearance and dismissed the claim: [2013] EWHC 1445 (Ch). The appeal concerned the effect of the licence and whether the surety’s contractual proviso preserved liability by reason of forbearance or time given.

1. Appeal dismissed. The licence varied the lease by permitting works prohibited by the alteration covenants. Under the rule in Holme v Brunskill (1878) LR 3 QBD 495, an unconsented variation discharges a surety unless it is self-evidently unsubstantial or incapable of prejudicing the surety.
2. The lease’s definition of the demised premises extended to additions, alterations and improvements. Its repair, painting, maintenance and yielding-up covenants therefore applied to the premises after the works. The licence had the clear potential to increase the tenant’s obligations and consequently the surety’s possible liability. The rule in Holme v Brunskill therefore applied.
3. The proviso in the surety’s covenant was a qualification to the principal obligation. Its purpose was to prevent release merely because the landlord failed to enforce the tenant’s covenants through neglect, forbearance or giving of time. The expressions took colour from one another and the contractual context. Forbearance meant a deliberate decision not immediately to enforce an obligation against a tenant already in breach, while tolerating the breach.
4. A licence granted before any breach was not forbearance. It positively authorised the works rather than postponing enforcement of an existing breach. Nor was it the giving of time: it did not postpone the date on which the landlord could require removal of the works. The reinstatement covenant also required reinstatement only if the landlord reasonably required it. The proviso did not therefore preserve the surety’s liability.

• Court of Appeal (Civil Division) dismissed the appeal: [2014] EWCA Civ 18.
• Chancery Division, Alison Foster QC sitting as a Deputy High Court Judge, dismissed Topland’s claim after finding that the licence potentially increased the tenant’s obligations and was not forbearance: [2013] EWHC 1445 (Ch); reported at [2014] 1 P & CR 2.