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Archive for March, 2010

And that is guaranteed?

Some readers may recall the arguments which raged about original tenant liability.  The Landlord and Tenant (Covenants) Act 1995 was introduced to lessen the burden on original tenants and their guarantors once the leasehold interest has been assigned to a third party.

The Act releases a tenant from covenants in a lease entered in to on or after 1 January 1996 upon assignment but does not preclude him from entering in to an authorised guarantee agreement (an “AGA”) with the landlord with respect to the assignee.  The question that arose in the case of Good Harvest Partnership LLP -v- Centaur Services Limited [2010] EWHC 330 (Ch) was where this left the tenant’s guarantor.

Looking at the wording of the Act, Mr Justice Newey said he concluded that the Act “was meant to ensure that any obligations undertaken by a person as guarantor for a tenant should come to an end on the assignment of the lease”.  However, he did not think it clear whether the Act permits a guarantor to sub-guarantee a tenant’s obligations under an AGA.  He said the Act “is plainly designed to impose restrictions on freedom of contract.  The question is how far those restrictions go.”  Nevertheless, he concluded that if a landlord were able to call on the tenant’s guarantor to give a guarantee for an assignee it would drive “the proverbial “coach and horse” through the legislation”.  Therefore, despite the wording of the lease, which required the tenant and its guarantor to enter into an AGA upon any assignment, he stated that the landlord was unable to pursue the tenant’s guarantor after the tenant’s assignment of its leasehold interest.

Whilst on the question of the 1995 Act, it is worth recalling that in relation to any lease (whether granted before or after 1 January 1996), a landlord can not recover any “fixed” sums due under the tenancy from a former tenant or guarantor unless a notice (a “s17 notice”) has been served within 6 months of the date when the sum fell due.

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