1. T must be served with a notice warning him of the consequences of contracting out of his LTA 1954 security of tenure.

2. T must then confirm that he has received the notice. This can be by a ‘simple declaration’ of L’s warning notice if served 14 days or more before T signs the tenancy (or the contract). If the warning is served less than 14 days beforehand, then T’s declaration has to be a ‘statutory declaration’.

All of this has to be done before T becomes ‘contractually bound’. But, there is no mention of guarantors in the Regs. That then raises the question of when a guarantor becomes ‘contractually bound’ and presumably it will either be (i) when he first signs the guarantee, or (ii) when L eventually asks the guarantor to take on a new lease (after T has defaulted). If the latter interpretation is correct, then L will not have to worry about serving the health warning notices etc on the guarantor at the time T takes out the lease; he will simply have to serve those notices if T actually goes into default, and L wants the guarantor to take on a new lease.

The difficulty is that the wording of the Regulatory Reform Order suggests that the guarantor will be ‘contractually bound’ when he first signs the guarantee. If that is correct, then theoretically the guarantor should also be served with the usual health warning notices at the same time as T. Needless to say, that creates more work and more expense.

In practice, it may well be that this is more of a theoretical risk than a practical one. If T does go into default, then the guarantor is likely to be in such a difficult position that L can dictate what happens anyway. For instance, L can simply ask the guarantor to continue paying the rent, in which case the issue of contracting out of a new lease will not arise (although it will probably result in the unsatisfactory situation of the guarantor not being entitled to take possession, and thus there being an empty property – which L might eventually enter to repair – and then face an argument by the guarantor that he has recovered possession!). In practice, of course, it is extremely rare for L to ask a guarantor to take a replacement lease, and in any event there has always been the problem that theoretically a guarantor might refuse to co-operate on the grant of such a lease. What matters at the end of the day is that L can always continue to send rent demands and performance of the other covenants (or payment of damages in lieu) to the guarantor.

Needless to say, it would be helpful if the Regs could be amended to clarify the position as regards guarantors. See [2004] EG 19 June 166. © Practical Lawyer