A High Court ruling that challenged the industry assumption that landlords can rely on a former tenant’s guarantor following a lease assignment will stand after an appeal against it was settled.
The decision on authorised guarantee agreements (AGAs) came in a case involving landlord Good Harvest Partnership and guarantor Centaur Services.
Good Harvest attempted to recover rent that had gone unpaid by an assignee of premises at Lymedale business park,
However, in January, the High Court ruled that the AGA agreed between Centaur and the original tenant at the time of the assignment was unenforceable under the Landlord and Tenant Act 1995.
Judge Newey said that the Act was meant to ensure that any obligations undertaken by a guarantor on behalf of a tenant should terminate on assignment.
Yesterday, following the settlement of the dispute, Leona Briggs, head of Osborne Clarke’s real estate sector group, said: “The law stands unchanged following the first instance decision.
“Landlords are not able to enforce direct guarantees given by a former tenant’s guarantor in an AGA and are likely to be the same position when a former guarantor gives a subguarantee in an AGA.
“Landlords that were relying on guarantees given by a former tenant’s guarantors before the decision in January will need to continue to rely on the guarantees given by the former tenant alone.
“Landlords entering into new AGAs on assignment will have to consider how they can back up the guarantee given by the former tenant under an AGA if its covenant strength is weak. More landlords will require assignee tenants to provide their own guarantors.
“Given landlords’ reaction to the decision, it is likely that they will seek to clarify the position in the courts in the near future. We may also see the position of former tenants’ guarantors providing subguarantees being distinguished from this decision,” she said.
