By Julian & Renee (Australia) – with writing support from Alberto Aldana (Colombia
An important issue that may arise in property dealings, particularly when a lease involves a personal guarantee, was highlighted in Ushta Pty Ltd atf The AVVM Trust v Babayan. This matter concerns the enforceability of a personal guarantee, the assignment of rights under a lease agreement, and the risks posed for both vendors and purchasers in circumstances where the parties involved change, such as when a new lessee takes over a lease or when a guarantor denies their obligations.
The property in question was leased to Hugo Junior Enterprises Pty Ltd by the Loke family, with the lease guaranteed by Babak Babayan, who was the sole director of the company. The lease was reassigned multiple times, including to Meditrainean Pty Limited, and the Loke family later sold the premises to Ushta Pty Ltd. The issue arose when Ushta sought to enforce Babayan’s guarantee, which included agreeing to pay rent arrears. The Tribunal dismissed that claim because of issues regarding whether the guarantee continued to apply after the lessees changed. The key legal question was whether the guarantee could extend to the new parties and whether the Deed of Assignment properly created the right to enforce the guarantee. This case reminds buyers and sellers of the problems that can arise when the parties to a property lease are not the same as the parties to the sale, particularly where guarantees are involved.
Buyers should note that a guarantee is not always transferable from one person to another. A new owner or tenant may find it difficult to enforce the personal guarantee of a previous lessee or guarantor if the guarantee does not extend to subsequent parties. It is important to confirm that the guarantee applies to any future change in tenancy. Moreover, buyers should check that the required formalities (for example, notice of assignment) have been properly completed. Vendors should also be aware that a change of lessee and the assignment of lease rights may render guarantees unenforceable. If terms are ambiguous or not properly executed, this can lead to a prolonged legal dispute that may hinder the sale or purchase of the property.
The implications of this case are important for both buyers and sellers. If a guarantee is not properly assigned or the relevant formalities are overlooked, the purchaser may lose the right to recover outstanding debts. At the same time, the vendor may remain liable for obligations assumed under the guarantee. Such errors can cause costly delays and financial losses. Due diligence must therefore be exercised not only on the underlying documentation but also in relation to lease assignments and personal guarantees.
Julian and Renee from Flash Conveyancing are property transaction specialists who assist clients across New South Wales. With extensive experience working with local councils including Blacktown, Hornsby, and Parramatta, they carefully manage each settlement. Whether you are buying or selling in Kellyville, Castle Hill, Windsor, or elsewhere, we ensure that every detail is checked. From lease assignments to guarantor obligations, all relevant matters are reviewed to give you peace of mind.
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