Good Harvest - Bad News?

Originally published 31 March 2010

Keywords: Landlord & Tenant Act, covenants, Good Havest Partnership, Centaur Services, lease, authorised guarantee agreement , AGA

Last month – almost 15 years after the Landlord and Tenant (Covenants) Act 1995 ("the Act") came into force - the High Court decided in "Good Harvest Partnership LLP v Centaur Services Limited"1 ("Good Harvest") that a tenant's guarantor is released on a lawful assignment of a lease (entered into after 1 January 19962) and cannot be required to enter into an authorised guarantee agreement ("AGA").

Facts

Centaur Services ("CS") was a guarantor under a lease granted in 2001. In 2004 the tenant ("T") assigned the lease with the landlord's consent. As a condition of the landlord's consent being granted the lease required that both CS and T enter into an AGA, which they duly did.

In June 2009, the landlord issued proceedings against CS. Relying upon the AGA, it sought recovery of rent arrears owed by T's assignee. CS defended the claim, arguing that the AGA was void on the basis that it contravened the Act. The High Court agreed.

The Decision

Mr Justice Newey concluded that the AGA was void on the following grounds:

Tenants and their guarantors are released from liability in relation to the tenant covenants in a lease upon a lawful assignment pursuant to s5 and s24 of the Act. The release is limited only by the provisions of s16 of the Act, which says that a tenant may provide an AGA guaranteeing the incoming tenant's liability. S16 does not refer to guarantors, which Mr Justice Newey interpreted as evidence of a parliamentary intention that guarantors should be unable to provide AGAs and, therefore, should be released unconditionally from them. Any attempt to require a guarantor to enter into an AGA would frustrate the Act, which is contrary to the anti-avoidance measures in s25. S25 of the Act states that any attempt to "exclude modify or otherwise frustrate the operation of the Act" is void and, therefore, unenforceable. Although irrelevant to the facts in Good Harvest, Mr Justice Newey went on to consider two further questions:

Whether a tenant's guarantor can also volunteer to act as a guarantor of the assignee? Whether the landlord could have required CS to provide a sub-guarantee (a guarantee of T's obligations in the AGA) as an alternative to guaranteeing the assignee's obligations? The Court held that both arrangements would be void. He went further: saying that where one...