13 August 2014

Is the guarantee you have valid?

Priya Sharma
Senior associate | UK

An authorised guarantee agreement (‘AGA’) is a guarantee by a tenant of its assignee’s performance of the tenant obligations in the lease.

A guarantor’s guarantee of the assignor’s AGA obligations is valid

More recently it has been confirmed that the guarantor of an outgoing tenant may validly guarantee that tenant’s performance of its AGA obligations.

A guarantor’s guarantee of the assignee’s performance will be void

By contrast, an AGA entered into by a tenant’s guarantor to guarantee the obligations of the assignee will be void. Therefore, any obligations in leases that require a tenant’s guarantor to enter into an AGA guaranteeing the assignee as a pre-condition to granting landlord’s consent to an assignment is unenforceable. In such situations, landlords should consider alternative security.

In addition, the Court of Appeal has indicated that the tenant’s guarantor may act as a guarantor for a subsequent assignee, albeit not the immediate assignee.

Therefore, a landlord should think carefully before accepting guarantees on an assignment and particularly in the context of an inter-group transfer where it is natural to assume (incorrectly, as it happens) that the same parent company that is guaranteeing the outgoing tenant company may guarantee the incoming tenant company.

Priya Sharma Senior associate | London

Category: Article