Friday, June 2, 2023

An important early decision of the Supreme Court – a personal guarantee is not an open thorn for the landlord


The guarantee is not intended to be used for payment of regular rent.

In its recent preliminary judgement, the Supreme Court ended up upholding the guarantee commitment given by a private person as security for the obligations of the lease agreement.

– The decision confirms the previously adopted line that the guarantee is not intended to be used for regular rent payments, Suomen Vuokranantajat said in its press release.

In a case dealt with by the Supreme Court, the guarantor had given a personal guarantee of his child’s family as security for the lease agreement. A personal guarantee means that the guarantor undertakes to be responsible as himself for the obligations of the contract.

However, the tenants had failed to pay the rent almost immediately. The rental agreement was agreed upon for a limited period of time for the first three years, after which the rental relationship was to continue indefinitely.

In its judgment, the Supreme Court rationalized the guarantor’s responsibility so that he is not liable for the debt of rent after the termination of the contract.

However, in its reasoning, the court emphasized that the limits of reasonableness of the guarantee commitment are high. A guarantee is in itself a onerous legal action, the very sensitive rationalization of which would greatly undermine its usefulness as collateral.

– The mere creation of a payment obligation or even a large final bill does not in itself lead to reasonableness, as KKO has now said, Sara Penttila, Suomen Vokrantje’s lawyer, says in the press release.

The Supreme Court pointed out that the guarantor did not have the opportunity to terminate the rental agreement or limit his guarantee liability in the event of problems. According to landlords, it is already established case law that the landlord can also be forced to terminate the lease in order to reduce the loss to the guarantor if payment problems persist .

– The purpose of the guarantee is not to keep the rental relationship alive if the tenant has no intention of paying the rent himself. If it’s clear that the tenant can’t manage the rent despite an additional payment period or other measures, Penttilla says it’s often necessary to terminate the tenancy.

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