Summary and implications
A tenant’s guarantor cannot be required to give a guarantee when the tenant assigns its lease. Such a guarantee will be invalid. This was confirmed today by the Court of Appeal in the long-awaited House of Fraser decision (which affirms the decision in the Good Harvest case).
This Court of Appeal has taken the opportunity to clarify other issues left undecided by Good Harvest:
- 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 being compelled to offer it by the landlord. It will still be invalid.
- Can a tenant’s guarantor guarantee the tenants’ obligations in an 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 the AGA.
Implications for landlords when a tenant applies for consent to assign and on a new letting
- Landlords may be able to withhold consent if the assignee is a weak covenant and can only offer a guarantee from a previous guarantor.
- However, landlords should consider whether an AGA guaranteed by the outgoing tenant’s guarantor, provides adequate security.
- Landlords may not be able to recover unpaid sums from an existing repeat guarantor. That may affect investment values.
Implications for tenants on intra-group transfers
- It may be difficult to secure landlord’s consent to an intra-group transfer if the parent company has guaranteed the existing tenant and the tenant cannot find a fresh guarantor. However, the landlord may be satisfied with an AGA so long as the tenant’s guarantor guarantees the obligations in the AGA.