A Landlord's guide to spring cleaning Commercial Lease Agreements

A LANDLORD'S GUIDE TO SPRING CLEANING COMMERCIAL LEASE AGREEMENTS: PART 1: DEEDS OF SURETYSHIP

A lease agreement forms the basis of the relationship between a landlord and tenant, and it is important that all terms agreed to (between the parties) are properly recorded.

Unfortunately, landlords often only realize how crucial a certain clause is when it is too late.

In Part 1 of a 3-part series, Janie Venter, Junior Associate at law firm, Barnard, highlights the necessity of clauses to ensure that a commercial lease agreement is 'waterproof'.

Deeds of Suretyship - an important tool for landlords in their commercial lease agreements

The purpose of a Deed of Suretyship is to limit the potential loss to a landlord that may arise if the tenant defaults on the lease agreement i.e., the landlord enters into a suretyship with a third-party to ensure security for the payment of the rent in circumstances where the tenant is unable to pay.

A tenant is required to nominate a third-party as surety for their obligations set out in the lease agreement. When the third-party signs surety, they are effectively agreeing to be held jointly liable for any breach of the lease agreement on the part of the tenant. The surety will stand in as co-debtor i.e., should the tenant default on his/her rent, the surety will be held financially liable in his/her personal capacity.

Most commercial lease agreements are lengthy, and it is common for parties to skip over the annexures by not signing or initialing. The problem arises when landlords forget to follow up on this or even include this in the lease agreement.

An unsigned Deed of Suretyship is unenforceable - it cannot stand alone as it requires an underlying agreement i.e., the lease agreement.

The General Law Amendment Act states that for a suretyship to be valid, its terms must be in writing - and signed for - by the representative of the tenant, landlord and the surety:

1. Barnard advises that the suretyship be drafted in plain language.
2. The suretyship must set out the details and identity of the surety, the tenant, and the landlord.
3. If a surety's duly appointed agent signs on behalf of the surety, a written Power of Attorney, authorising the agent to sign on behalf of the surety, must be attached to the suretyship.
4. If the nominated surety is married in community of property, the spouse of each surety must provide consent in writing to bind himself/herself as surety. Failure to produce this will result in a void and invalid suretyship.

Landlords have the choice of instituting legal proceedings against the tenant and/or the surety simultaneously, the one absolving the other in settling the debt, but a clause providing for this must be drafted in the suretyship. If it is not included, the landlord will only be able to go after the surety once all routes taken against the tenant have been exhausted - and unsuccessful.

It is just as critical to screen a nominated surety as it is to screen a prospective tenant. If this is not done, the purpose of the surety can be negated.