Tenants’ guarantor and authorised guarantee agreements

In the recent case of Good Harvest Partnership v Centaur Services [2010] All ER (D) 238 the High Court confirmed that any guarantee by a tenant’s guarantor, guaranteeing the tenant’s assignee, is void as it falls foul of the anti-avoidance provisions in the Landlord and Tenant (Covenants) Act 1995 section 25.

The Court of Appeal in K/S Victoria Street v House of Fraser (Stores Management) [2011] EWCA Civ 904 supported the decision made in Good Harvest except in relation to one point that may assist landlords.  The Court of Appeal confirmed that there is no reason why a landlord could not require a guarantor to guarantee the tenant’s liability under an Authorised Guarantee Agreement.  This point has been previously left open in the decision made in Good Harvest.

To summarise, the Court of Appeal held that an existing or contracting tenant’s guarantor cannot validly be required to commit itself in advance to guarantee a future assignee’s liability.  The court also confirmed that an assignor’s guarantor cannot validly guarantee the liability of the assignor’s assignee.  In order for the assignor’s guarantor to guarantee the liability of the assignor’s assignee the assignor’s guarantor must be a party to an Authorised Guarantee Agreement which otherwise complies with section 16 of the Landlord and Tenant (Covenants) Act 1995.