07/10 AGA saga: the saga continues

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In our March bulletin, we looked at the High Court decision in Good Harvest Partnership LLP v Centaur Services Ltd. In that case, a guarantee given by Centaur in an authorised guarantee agreement (AGA) was found to be void as it breached the provisions of the Landlord and Tenant (Covenants) Act 1995.

Much has been written since about whether the decision simply prevents landlords forcing a tenant's guarantor to guarantee an AGA as a pre-condition to assignment of the lease or whether it goes further and outlaws guarantees given voluntarily. If it is the latter, this could strike at many arrangements entered into for sound commercial reasons.

The landlord appealed the High Court decision and it was hoped that the Court of Appeal would clarify the position. However, the parties recently settled the dispute before the Court of Appeal was able to deliver its judgment. As a result, the position remains as set out in the bulletin.

It is likely that the courts will, in due course, be asked to rule on the validity of other arrangements whereby an outgoing tenant's guarantor remains liable following the assignment of the lease. Until then, landlords may still wish to include provisions in leases which allow them to ask for an outgoing tenant's guarantor to enter into an AGA and wait and see whether these provisions work. Tenants are, of course, in a stronger position to be able to reject them.

However, as we commented in our bulletin, it is not all good news for tenants. Landlords will doubtless look for other ways to ensure that tenants comply with lease covenants. They may start routinely asking for a guarantee from every assignee of a lease or ask for larger rent deposits. Time will tell whether the courts consider this to be reasonable or not. In the short term, the uncertainty risks making it harder for tenants to assign their leases.

There is some talk of the property industry lobbying Parliament to introduce legislation to clarify the situation. We await further developments with interest.