Lease Guarantees (Authorised Guarantee Agreement)
In Victoria Street v House of Fraser and others, the Court of Appeal has now given some much needed clarity on authorized guarantee agreements. These agreements are a ticking time bomb for many tenants with long leases who wish to sell on the lease (assign it) yet are required, in accordance with the terms of the lease, to guarantee the new tenant’s obligations. This in turn is at odds with the statutory position which is against an outgoing tenant having to guarantee the next tenant’s obligations.
This unsatisfactory position, where Landlords still insist on AGA’s on assignment but where it is doubtful they can be enforced has led yet another layer of guarantees where guarantors are coomonly asked to “underwrite” an AGA, in effect a guarantee if a guarantee !
The new Court of appeal ruling provides that :-
- a guarantor of a selling tenant cannot, either by consent or compulsion, guarantee the performance of that tenant’s assignee
- sub-guarantees are legitimate – a guarantor of a selling tenant can legallly guarantee that tenant’s liabilities under an AGA
- after a guarantor has been released from liability it can provide a fresh guarantee for a later assignee but not the assignee to whom the transfer has taken place
