AGA saga case settles - Landlords harumph

A high court ruling that challenged the widespread industry assumption that landlords can rely on a former tenant's guarantor following a lease assignment will stand after an appeal against it was settled.

The decision on authorised guarantee agreements (AGAs) came in a case involving landlord Good Harvest Partnership and guarantor Centaur Services Ltd.

Good Harvest was attempting to recover rent that had gone unpaid by an assignee at Lymedale business park, Newcastle-under-Lyme.

But in January the High Court ruled that the AGA agreed between Centaur and the original tenant at the time of the assignment was unenforceable under the 1995 Landlord and Tenant Act.

Judge Newey said that the Act was meant to ensure that any obligations undertaken by a guarantor for a tenant should come to an end on assignment.

Yesterday, following settlement of the dispute Leona Briggs, head of Osborne Clarke's real estate sector group said: "The law stands unchanged following the first instance decision.

"Landlords are not able to enforce direct guarantees given by a former tenant's guarantor in an AGA. It is likely to be the same position when a former guarantor gives a sub guarantee in an AGA.

"Landlords who were relying on guarantees given by former tenant's guarantors before the decision in January will need to continue to rely on the guarantees given by the former tenant's alone.

"Landlords entering into new AGAs on assignment will need to consider how they can back up the guarantee given by the former tenant under an AGA if their covenant strength is weak. We will see more landlords requiring assignee tenants to provide their own guarantors.

"Given the reaction from landlords to the decision it is likely that a landlord will seek to clarify the position in the courts in the near future. We may also see the position of former tenants' guarantors providing sub guarantees being distinguished from this decision," she said.

For me the most interesting part of the case was that the acronym for authorised guarantee agreements was AGA. Perhaps I am in the wrong job?
Photo by Jonny Hughes via Flickr.