If a tenant (A) wishes to transfer a lease, it is common for a landlord to require A to stand as guarantor for a new incoming tenant (B). This is known as an "authorised guarantee agreement" (AGA) and has been available to landlords since the Landlord and Tenant (Covenants) Act 1995 became law. It represents an inroad into the basic principle of the 1995 Act that a tenant is released from liability under the lease after the date of the assignment.
Landlords often require tenants to provide a guarantor because the tenant has few assets. Therefore, C (A's parent company) will often provide a guarantee to A's liabilities. In 2010 the High Court in Good Harvest Partnership LLP v Centaur Services Ltd (2010) made it clear that C could not be required to stand as guarantor to the assignee, B, as that would be in breach of the anti-avoidance provisions of the 1995 Act. But what about the position where C guarantees A's performance of the AGA that A provides for B? This is called a "sub-guarantee".
In a recent case, the Court of Appeal held that sub-guarantees are valid and do not contravene the anti-avoidance provisions of the 1995 Act. The decision will affect intra-group assignments where A, B and C are members of the same group.
Further details of the Victoria Street v House of Fraser and others (2011) case can be viewed here.