Commercial Property Focus - May 2010
Guarantors May Reap The Benefits From Good Harvest Case
Prior to January 1996 an original tenant could
be held liable for rent for the entire term of the lease even if
the lease had been transferred to a new tenant. Following the
Landlord and Tenant (Covenants) Act 1995 tenants were no longer
responsible for payment of rent after it had been assigned .The Act
did however allow a landlord to require the outgoing tenant
to enter into an authorised guarantee agreement on assignment of
the lease.
There has been much debate over the last
nearly fifteen years about whether a landlord could also
force an outgoing tenant’s guarantor to enter into an authorised
guarantee agreement (AGA). It has been fairly common practice
in the property industry for this to be insisted on by the
landlord. In these uncertain financial times this was especially
important if the tenant did not have good financial status and the
guarantor was financially strong.
In the recent case of Good Harvest Partnership
–v- Sentor Services decided in February 2010 , the landlord brought
an action against the guarantor of the original tenant for rent
arrears as the current tenant had failed to pay the rent. The High
Court held that the guarantor could not be forced to enter into an
AGA in those circumstances and if they did, the agreement was void
and unenforceable. Even if the tenant’s guarantor was happy to
enter into the AGA it would still be void.
This case is to be appealed but at the moment,
as a result of this case landlords are no longer able to seek
security from a tenant guarantor to guarantee an assignee.
Landlords will have to look very closely at any applications to
assign a lease and the financial status of the proposed tenant. The
landlord will now have to look at obtaining alternative security
such as bank guarantees and rent deposits. The bonus for any former
guarantor who did enter into an AGA on those terms as guarantor
will no longer have to worry about future liabilities.
Sian Evans is a Partner in the
Property Litigation at Weightmans LLP, Sian.evans@weightmans.com
This article first appeared in the
Liverpool Daily Post View Point on 7 April 2010