The main statutory provision is the Landlord and Tenant (Covenants) Act 1995 (referred to throughout this note as the LTCA 1995).

Leading Authorities

Good Harvest

In Good Harvest Partnership LLP v Centaur Services Ltd [2010] EWHC 330 (Ch), the High Court held:

• Only a tenant (not a tenant's guarantor) could give a guarantee for an assignee; the guarantee must be in the form of an AGA; and

• The guarantee given by the tenant's guarantor in the AGA, for the assignee, was void under section 25(1) of the LTCA 1995.

K/S Victoria Street

The Court of Appeal in K/S Victoria Street v House of Fraser (Stores Management) [2012] Ch 497 confirmed Good Harvest in ruling that:

• Any obligation that is imposed on a tenant's guarantor in advance, to guarantee the obliga􀆟ons of an immediate assignee, is void.

• Sub guarantees are valid, whether they are contained in the wording of the original guarantee, or given by a tenant's guarantor as party to and set out in an AGA.

• A tenant's guarantor cannot volunteer to act as guarantor for the immediate assignee, even if it willingly does so.

• A tenant's guarantor can act as guarantor for subsequent assignees (as long as it does not do so for the immediate assignee).

Is a guarantee offered by the current tenant's guarantor for the proposed assignee always void?

Yes, any guarantee given by the current tenant's guarantor of the obligations of the immediate assignee will always be void.

A person (or company) that has guaranteed the tenant's obligations cannot also guarantee the obligations of the tenant's immediate assignee. Under the anti-avoidance provision of the LTCA 1995, anything that frustrates the release of the tenant or its guarantor from the lease covenants is void.

The Court of Appeal in K/S Victoria Street reasoned that allowing the guarantor to give a second guarantee prevents that release, meaning that the second guarantee has to be void.

Can a tenant's guarantor act as guarantor for subsequent assignees?

Yes. The Court of Appeal in K/S Victoria Street concluded that a tenant's guarantor could act as guarantor for subsequent assignees even if it could not validly act as guarantor for the immediate assignee and it would not be void under section 25(1)(a) of the LTCA 1995, as it would not have the effect of frustrating the release of both tenant and tenant's guarantor on the first assignment.

Is a sub-guarantee valid?

A sub-guarantee arises where the tenant's guarantor guarantees the outgoing tenant's liability under the lease, but also that outgoing tenant's liability under an AGA.

Good Harvest cast some doubt on the validity of sub-guarantees. The Court of Appeal in K/S Victoria Street stated that the outgoing tenant's guarantor can validly guarantee that outgoing tenant's liability under an AGA.

Further, under section 24(2) of the LTCA 1995, a contractual guarantor (a guarantor other than a former tenant under an AGA), is released "to the same extent" as the tenant (to whom it acts as guarantor) is released from its tenant covenants. The AGA itself is not a tenant covenant since it does not fall to be performed by the person currently entitled to the term of the tenancy (as required by section 24(2) of the LTCA 1995).

What the guarantor must not do is directly guarantee the assignee.

In summary

• A void guarantee would not invalidate the assignment itself, just the guarantee.

• If a guarantor did not guarantee the most recent tenant, the guarantor can provide a new guarantee of an assignee’s liability without infringing the LTCA 1995.

• A guarantor can guarantee the outgoing tenant's liability under an AGA, but the guarantor must not directly guarantee the assignee.

About the Author

Lauren Casey is a Solicoitor in our Litigation Team - you can find out more about her by visiting her profile page, or contact her via email: lec@gosschalks.co.uk.