Landlords and tenants may have heard of the Landlord and Tenant (Covenants) Act 1995. The effect of this Act, very simply, was that it brought to an end "privity of contract" (the continuing liability between original landlords and tenants after they had disposed of their interest in the lease). However in return it allowed landlords to ensure continuing liability from the outgoing tenant (who transfers its existing tenancy to another) by requesting an Authorised Guarantee Agreement (AGA) under the terms of which the outgoing tenant guarantees the performance of the incoming tenants ("assignee"). What was not clear, however, was whether or not a tenant's guarantor could be required to also give an AGA.

The Court of Appeal in Good Harvest Partnership LLP v. Sentaur Services Limited (2010) and in K/S Victoria Street v. House of Fraser (Stores Management) Limited (2011) has confirmed that an existing guarantor of a tenant cannot be obliged or agree to guarantee the liability of an assignee.

The position for tenants and landlords entering into new leases is clear so that where it is reasonable to do so:-

• a landlord can require an existing guarantor to sub-guarantee the original tenant's AGA in respect of the assignee's liabilities
• a landlord can require the assignee to provide a guarantor, other than the original guarantor on an assignment.
• a landlord can require an original guarantor to guarantee a second assignee's liabilities.
• a landlord cannot require an original guarantor to guarantee an assignee save as a sub-guarantor under an authorised guarantee agreement.

If you require any further advice or assistance please contact Jane Winfield or a member of the Property team at Wortley Byers on 01277 268314 or jwinfield@wortleybyers.co.uk.

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