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Aug 2, 2011

Going GAGA!

Guarantors' authorised guarantee agreements: some case law update
Category:Property Law 

The Court of Appeal has handed down the the  judgment in the case of K/S Victoria Street v House of Fraser (Stores Management) Limited and others [2011] EWCA Civ 904.

The Landlord and Tenant (Covenants) Act 1995  changed the law for leasehold covenants. For leases granted on or after 1st January 1996, with some limited exceptions, the tenant and its guarantor will automatically be released from all tenant covenants under the lease on an assignment. The 1995 Act provides that the only circumstances in which the tenant may guarantee the performance by the assignee of the tenant covenants is by giving an "authorised guarantee agreement" which would mean that the assignee would guarantee the new assignor performance of the lease covenants.

The 1995 Act is silent as to whether the tenant's guarantor is able to guarantee performance by the tenant of its obligations under the AGA by Guarantors AGA but it doe state that, to the extent that any type of agreement which attempts to exclude, modify or frustrate the operation of the 1995 Act, the agreement will be void. In the case of Good Harvest LLP v Centaur Services Limited [2010] EWHC 330, where Newey J held that the guarantor of a tenant's obligations under a lease could not validly guarantee the obligations of the assignee of that tenant.

Repeat guarantees

It remains the case that an existing guarantor of a tenant cannot validly guarantee the obligations of an assignee. This applies whether or not this is a requirement of the alienation provisions of the lease and even where the giving of the second guarantee suits all of the parties .


The decision is limited in its assistance for Landlords in these purposes of guarantee matters, although some useful comments are obiter and not binding.  Landlords would have to find practical enforceable alternatives to AGAs especially where new assignees can offer their own guarantor, but the attractiveness of the leases with very onerous terms may result in this market, in a lack of real interest.

The Judgment can be found here.



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