One of the most important decisions of 2010 was that of the High Court in ruling that T’s guarantor cannot be required to also guarantee the obligations of T’s assignee when T assigns. Any such requirement will be void. 


The problem lies in the anti-avoidance provisions of Landlord and Tenant (Covenants) Act 1995. Section 25 makes void ‘any agreement’ (even if outside the tenancy agreement) that falls within its scope. Accordingly, in Good Harvest [2010] sub-T assigned to sub-T1. In the accompanying Authorised Guarantee Agreement, both sub-sub-T and his guarantor, agreed to guarantee sub-T1’s obligations under the lease. However, when sub-T1 defaulted, the guarantor denied liability, arguing that the terms of the AGA were in breach of the s25 anti-avoidance provisions. The High Court agreed – and, in doing so, threw established L&T practice into turmoil. 


The correctness of that decision was challenged in another High Court decision recently, but the challenge failed. The facts were largely similar. It was held by the deputy judge that the guarantee provisions in respect of the assignee were void. The only good news was that the rest of the agreement was enforceable (ie the fact that the obligations on the guarantor were void did not mean that the rest of the provisions in the AGA were also void). The end result is that the only direct guarantees on which L can now rely are those (i) by a current T’s guarantor, or (ii) a former T under an AGA. 


Some suggestions have been made as to how this decision might be side-stepped, especially if there are groups of companies involved. One idea is to assign a lease (under which a parent company had provided a guarantee) to the parent guarantor and new T (subsidiary) jointly. A further option could be to assign the lease to the parent guarantor, and then assign again to the new T (subsidiary) with the parent then giving an AGA. However, such arrangements could well be risky; surely the court will eventually have to decide whether the arrangements are ultimately in place to circumvent the anti-avoidance provisions in s25, and if the answer is ‘yes’ then Good Harvest will have to be followed. 


As things stand, there is, however, still some debate as to whether this decision extends to sub-guarantees (sometimes called ‘parallel guarantees’). This is when a guarantee is given by T’s guarantor, and it guarantees T’s obligations under the AGA (ie not the obligations of the assignee). A ruling on this point is needed. See commentary on Good Harvest v Centaur [2010] EWHC 330 (Ch) and K/S Victoria Street v House of Fraser [2010] EWHC 3006 (Ch) (access both free at www.practicalconveyancing.co.uk), in [2010] NLJ 1711.