Lease guarantees – some clarification

A tenant’s guarantor cannot give a guarantee when the tenant assigns its lease. Such a guarantee will be invalid. This High Court decision in the Good Harvest2 case was re-affirmed in July this year in the House of Fraser3 Court of Appeal decision. The Court of Appeal also took the opportunity to clarify other issues left undecided by Good Harvest. These were:

  • Can a tenant’s guarantor give a voluntary guarantee on assignment? No. It does not matter if the repeat guarantee is offered freely by the tenant’s guarantor, without it being compelled to offer it by the landlord. It will still be invalid.
  • Can a tenant’s guarantor guarantee the tenant’s obligations in an authorised guarantee agreement (AGA)? Yes. This removes some of the difficulties caused by Good Harvest, in that a weak outgoing tenant giving an AGA, can now secure his obligations under the AGA by having his guarantor as a party to it.

Lease guarantees – a new headache

A new, albeit throwaway, point raised in the House of Fraser case was that an assignment to the tenant’s guarantor will be void, as the practical effect is that the guarantor remains liable under the tenant covenants post assignment. This may cause some issues on group restructurings, or where the guarantor tenant has either registered its interest at the Land Registry, or has purported to assign its interest to a third party.

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