HOF Good Harvest - Good Harvest Is Good Law, But Sub-Guarantors Will Be Allowed

Summary

Last year the High Court in the Good Harvest case1, and subsequently in the House of Fraser case2, held that the Landlord & Tenant (Covenants) Act 1995 (the Act) prevented a guarantor of a tenant's obligations from being required to give a further direct guarantee in respect of an assignee of the lease.

On Wednesday 27 July, the Court of Appeal3 in the House of Fraser appeal confirmed that decision and provided further important, and at times surprising, clarification.

The Court confirmed that an existing guarantor of a tenant cannot guarantee the liability of the tenant's assignee, nor commit itself in advance to guarantee the liability of a future assignee. However, an existing guarantor can later validly guarantee the liability of a future assignee on a further assignment.

An existing guarantor can guarantee the obligations of the Tenant where that Tenant enters into an AGA (a sub-guarantee) at the time of the assignment by that Tenant to an assignee.

An existing guarantor cannot take an assignment of a lease from an existing tenant.

What should landlords do now?

Re-consider the valuations of their properties where they have weak tenant covenants backed by guarantors who were repeat guarantors, or where they have leases permitting intra group assignments without consent on the basis that the existing guarantor guarantees the assignee. These guarantees will be void. Ensure that their standard leases contain provisions requiring tenant's guarantors to give a sub-guarantee of the tenant's AGA4 on assignment. Be aware that they cannot rely on any guarantees in existing leases given by repeat guarantors. Not take into account any offer from a tenant's existing guarantor on an application to assign save where the offer is a sub-guarantee of an AGA offered by the existing Tenant. What should tenants do now?

Be aware that they may be required to provide alternative/different security on making an application for consent to assign to their landlord as well-informed landlords are unlikely to accept the offer of a guarantee from the existing guarantor. Be aware that well advised landlords are unlikely to allow intra group assignments without consent (previously this was often done on the basis that the existing guarantor guaranteed the obligations of the assignee). Be aware that a provision in an existing lease requiring their existing guarantor to give a guarantee on assignment will be void. Requirement for existing guarantor to guarantee...