Many property lawyers have reacted to the Court of Appeal decision upholding the landmark ruling in Good Harvest that questioned the use of authorised guarantee agreements (AGAs).
Commenting on the backing given to the ruling in the appeal in K/S Victoria Street v House of Fraser (Stores Management) Ltd Roger Cohen, joint head of real estate disputes at Berwin Leighton Paisner, said: “The Court of Appeal has done the right thing. A guarantor of a tenant can guarantee an assignee by joining into an AGA. But, commitments in advance to give guarantees of future assignees are void. A fair balance has been struck by a really strong property law panel of judges.”
Matthew Bonye, head of the real estate dispute resolution group at Herbert Smith, welcomed the decision as “excellent news for real estate practitioners” as the court had given “strong and reasoned support for guarantees of authorised guarantee agreements, commonly known as GAGAs.”
GAGAs are used to describe a situation where an existing tenant’s guarantor agrees to guarantee the performance by its tenant of obligations that that tenant may take on in the future under an AGA given on assignment
Mathew Ditchburn, partner in Hogan Lovells’ real estate disputes, team said: “Overall, this is a good day for the property industry.”
“What the court has done is come up with a complex solution to a simple problem. Although a guarantor cannot give a new guarantee of an assignee, it can enter into an AGA as a so-called ‘sub-guarantor’ and perhaps also as a ‘co-guarantor’. It may even be able to enter into a new guarantee when the lease is next assigned. The practical effect for landlords should hopefully be the same.”
Alicia Foo, a partner in the property litigation team at Pinsent Masons, said that the property industry would “breathe a collective sigh of relief” at the news that the appeal court had come to a “commercial decision”.
However, Foo said that some intra-group assignments could still pose problems but that “none the less, the decision that sub-guarantees are valid is good news for the property industry and will put paid to some of the controversy arising out of ‘the AGA saga’.”
Leona Briggs, head of real estate and infrastructure at Osborne Clarke, said that although the judgment had confirmed the principle in Good Harvest it had a caveat: a tenant’s guarantor can sub guarantee an AGA on assignment of the lease.
“The Court of Appeal’s interpretation is a commercial one and is good news for landlords who have regained an extra layer of security in the event of tenant default.”
