A nervous disposition
The Chancery Division Judge Mr Justice Morgan recently refused to grant Gordon Ramsay a declaration that a personal guarantee for rent was not binding because his signature had allegedly been unlawfully obtained.
The York & Albany, a 160 year old building in the exclusive Regents Park area owned by film director Gary Love was secured by Ramsay’s businesses in a bidding war in 2007 and has since been turned into an upmarket restaurant, bar and hotel.
Mr Ramsay alleged that a “ghost writing” machine was used by his estranged father-in-law, Christopher Hutcheson, to sign as guarantor for a 25 year lease. Ramsay argued that the machine was used without his consent. Under the lease Mr Ramsay is now personally liable for the £640,000 annual rent as guarantor.
Mr Ramsay claimed that he had thought the machine was used only for the purposes of signing merchandise and cook books but Mr Justice Morgan dismissed the majority of Mr Ramsay’s evidence saying it was “entirely implausible” that he was not aware of the full extent of the machine’s use. Further, the Judge was shown 42 legal documents on which he found Mr Ramsay’s signature and held that Mr Hutcheson, the then CEO of Mr Ramsay’s company, was given a wide general discretion to do as he wished by the celebrity chef.
Mr Justice Morgan made clear and unequivocal observations on what he considered Ramsay’s motivation for bringing the claim to be, namely; a bad deal. In his Judgement Mr J Morgan said:
“Mr Hutcheson was acting within the wide general authority conferred on him by Mr Ramsay at all times until Mr Hutcheson’s dismissal in 2010.”
“Mr Ramsay may now regret the transaction in relation to the premises. He may particularly regret his involvement as a guarantor…. he may consider that Mr Hutcheson did a bad deal. However on any finding, he is not able to say that Mr Hutcheson exceeded his authority in any respect. I hold that Mr Ramsay, acting through his agent Mr Hutcheson is bound by the guarantee in the lease of the premises.”
The Judge ordered Mr Ramsay to make an interim payment to Mr Love of £250,000 pending final settlement and it is also believed that Mr Love will seek to recover around £600,000 in outstanding rent.
The Judge refused permission to appeal however it remains to be seen if Gordon Ramsay takes the issue to the Court of Appeal.
A guarantee under a lease, like the one Mr Ramsay was so keen to get out of, is commonly required under a commercial lease. A guarantee acts as a promise given by one party to another that a third party will fulfil its obligations, as well as a promise to fulfil these obligations if the third party fails to do so. In the context of a commercial lease this does not only apply to payment of rent but to all the tenant’s covenants under the lease and the guarantor will normally continue to be liable under the lease until the tenant assigns the lease on to another party. It is also common for a guarantee provision in a lease to allow the landlord to call upon the guarantor to enter directly into a new lease for the remainder of the lease term if the lease is forfeited.
Therefore, the first and most crucial thing to consider if asked to stand as a guarantee under a commercial lease is that:
(a) you are aware of the full extent of your liability under the lease; and
(b) you can afford to comply with your obligations if necessary.
As well as being asked to sign the lease itself, since the case of Topland Portfolio No. 1 Ltd v Smiths News Trading Ltd , landlords will be keen to ensure that any guarantor is asked to consent to any future variations of the lease, for example a licence. In this particular case the licence did not in fact increase the rent payable by the tenant, but instead permitted some fairly serious construction work and in this case the court found in favour of the guarantor who was released from their obligations under the entire lease as they had not been a party to the licence for alterations. It is vital therefore that if asked to be a party to a further document you understand the extent to which your liability as guarantor is being extended.
The Gordon Ramsay case certainly highlights the importance of a guarantor from a landlord’s perspective – if the judge had found that the ghost written signature of Gordon Ramsay could not be relied upon Mr Love would have had no one to pursue for the £640,000 annual rent. It also serves as a warning to guarantors – a reminder of their potential high liability. And while the particular risks of a ghost writing signature machine may not be entirely relevant to many of us, this case certainly reminds us all of the importance of being completely clear on the obligations created by your signature on a legal document.
If you need advice about entering into a commercial lease or acting as a guarantor please contact a member of the Kingsley Napley LLP Real Estate team.
Should you find yourself involved in a property dispute please contact a member of the Kingsley Napley LLP Dispute Resolution team who will direct you to specialised litigators.
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