Extension of guarantees in lease agreements

As from August 23, 2002 section 1582 bis has been added to the Argentine Civil Code and is worded as follows:

"The obligation of the guarantor ceases automatically on expiry of the term of the lease, except for such obligation as may derive from the failure to return the property rented.
The express consent of the guarantor is required for him to be obliged on the express or tacit renewal or extension of the lease agreement once it has expired.
Any clause in the lease agreement extending the guarantee, whether simple, or surety as joint or principal debtor under the original lease agreement shall be null and void."

The first paragraph of the new section fills a legislative void regarding the duration of the guarantor's "obligation to respond".

From this new section, it is now clear that the guarantor is liable for all obligations arising out of the contract during its duration, unless the property is not returned at the end of the contract, in which case the guarantor continues to be obliged until eviction.

Previously, because of the void in the law, the authors were not in agreement on the duration of the guarantee. In some cases (Borda, Legón, Machado) it was argued that although the guarantor was principal payer, the guarantee should not extend beyond the term of the original contract, unless the lessee were to refuse to return the property, in which case the guarantor would be liable through to the time of its return.

On the other hand, other authors (Spota, Fernández Bula) have upheld the position that the surety persists until the property is actually vacated, even when occupation is with the tacit agreement of the lessee and the lessor.

The second and third paragraphs of the section that has been added require the express consent of the guarantor for him to be obliged by any renewal or extension of the original lease, and state the nullity of all clauses in the original lease agreement regarding the extension of the guarantee. This aims not only to protect the interest of the guarantor, who therefore is aware of the duration of the guarantee at the time it is granted, but also to ensure full awareness of the existence of any renewal of the original contract.

When original leases fell due it was common for lessor and lessee to come to an agreement to continue with the lease without the consent of the guarantor and without entering into a new contract. In such cases the original conditions could vary significantly, obliging the guarantor to respond when legal action was brought for unpaid rent for amounts higher than those to which the guarantor had originally agreed. As a result of the section incorporated to the Civil Code, this standard practice has been outlawed.

As regards the matter of nullity, it could be claimed that the lack of validity of any clause in the original lease contract extending the guarantee beyond the end of the contractual period is too severe and restricts the contracting freedom of the parties.

However, legislators have probably considered that if this clause had not been included it might have been possible for the guarantor to waive this right in advance, expressly allowing his responsibility to extend until the date of the actual return of the property to the lessor.

Such a possibility could then have become a regular practice, in effect returning the contracting parties to the same situation that prevailed before the change in the Civil Code was introduced.

Furthermore, the contracting freedom of the parties is protected, as at the end of the term agreed in the original contract they could expressly agree that the guarantor continues to be obliged, obviously with his consent.

In short, we understand that this addition has been intended to provide certainty to guarantors, thus facilitating the lease of property.