Real Estate Building Blocks - Joint and several liability

Real Estate Building Blocks - Joint and several liability

Real Estate Building Blocks - Authorised Guarantee Agreement

You will probably be familiar with the phrase “joint and several liability” as it features in most property documents, but what does it actually mean? How does it differ from "joint" liability or "several" liability? How does it impact on property transactions? This article aims to address these queries.

What is joint and several liability?

It is invariably the case that commercial contracts involving multiple parties will include a declaration of joint and several liability. Where more than one party agrees to perform an obligation under a contract and joint and several liability applies, each of them will be fully responsible for performance of that obligation both together and individually. This favours the party receiving the benefit of the obligation as it gives them the flexibility to pursue either one or both of the other parties.

For example, if A agrees to sell a property to B + C and the contract provides for B + C to be jointly and severally liable, then B + C are each responsible for the full purchase price. In the event of default, A could pursue B or C for as much of the price as it saw fit, provided that A cannot recover more than 100% of what it is owed. Often such decisions are led by the financial strength of the parties involved and so A will pursue the purchaser with the deepest pockets.

How does this differ from joint or several liability?

Joint liability is where each party is liable in full for the obligation. If one party satisfies the obligation in full then the other party is discharged from liability. Several liability is where each party is only liable for their own specified part of the liability, such as 70% of the purchase price or compliance with a specific obligation.

Where two or more parties enter into a contract without specifying the allocation of liability, joint liability will be presumed, but every case will turn on the facts.

Irrespective of how liability is allocated, where one obligor pays more than their “fair” share of a debt or satisfies the obligations of another party, they may be able to claim a contribution from the non-performing party. Such a claim is beyond the scope of this article.

Application on death

Where liability is joint, the death of one of the obligors will be the end of their liability and the whole of the liability will fall on the surviving obligors. Where liability is several, the individual share of the liability will transfer to the estate of the deceased and be enforceable against the estate.

Where liability is joint and several, the liability can be enforced in full against both the surviving obligors and against the estate of the deceased. Again, decision making on enforcement is likely to be led by the financial strength of the relevant parties.

Application to property transactions

Most property contracts incorporate standard conditions of sale. The relevant standard condition provides that where there is more than one seller or buyer to a property contract then the obligations can be enforced jointly or individually i.e. jointly and severally. As mentioned already, it is common practice for there to be an express contractual provision specifying the allocation of liability in any event.

In the context of leases, there is legislation which provides that where two or more parties are bound by a leasehold obligation, then their liability will be joint and several. This will cover circumstances, for example, where an outgoing tenant has given an Authorised Guarantee Agreement (AGA) guaranteeing the performance of the incoming tenant. As with property sale contracts, in practice it is common for AGAs, or the associated assignment documentation, to include a statement as to joint and several liability. We considered AGAs in the first of our Building Blocks series here.

The above is intended as an overview of the allocation of contractual liability in property contracts and is not a comprehensive analysis of the relevant law. If you have any questions on the above or require advice in this area, please contact our real estate team.

Contact our experts for further advice

Search our site