The AGA saga and parallel guarantees
One of the most significant landlord and tenant cases of recent times has clarified the position of the continuing liability of tenant guarantors.
A year ago, in our September quarter eZine, we reported on the High Court case of Good Harvest Partnership LLP v Centaur Services Limited which settled before it reached the Court of Appeal. In that case, the original tenant was supported by a guarantor. Under the lease it was a condition of the landlord’s consent to assign that both the tenant and its guarantor would have to enter into an Authorised Guarantee Agreement (‘AGA’) for the assignee. The High Court held that the guarantor could not give a direct guarantee for the assignee as this fell foul of the anti-avoidance provisions of the Landlord and Tenant (Covenants) Act 1995. The Court considered that the 1995 Act’s operation would be frustrated by this attempt to prolong a guarantor’s liability.
What remained unclear following this case was whether a tenant’s guarantor could be required to guarantee the outgoing tenant’s obligations under an AGA. The Judge in Good Harvest expressed doubts over the enforceability of this type of sub-guarantee or parallel guarantee. We reported that further case law would be needed to put this issue beyond doubt.
The Court of Appeal decision in the case of K/S Victoria Street v House of Fraser (Stores Management) Ltd confirms Good Harvest by holding that a tenant’s guarantor cannot directly guarantee the lease obligations of an assignee. However, in contrast to the views expressed in Good Harvest, the parallel guarantee arrangement (common in institutional leases) was strongly endorsed so that a tenant’s guarantor can be required to guarantee the outgoing tenant’s obligations under an AGA. Although strictly the Court of Appeal’s comments on the issue are not part of the binding decision, they will be highly influential and so this will be welcome news to commercial landlords.
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This article contains information of general interest about current legal issues. It does not give legal advice and specific advice should always be sought about your particular circumstances. We will be happy to assist.
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