Court of Appeal Clarifies Law on AGAs

A recent decision of the Court of Appeal provides some welcome clarification on the law relating to Authorised Guarantee Agreements and guarantors.

In K/S Victoria Street v House of Fraser (Stores Management) Ltd., a case concerning a complex deal, the Court of Appeal confirmed that an agreement by the tenant's guarantor to guarantee the tenant immediate assignee's liability under the lease in the future, at the time of an assignment, will be unenforceable. The Court also confirmed that an actual guarantee covering an assignee's liability under a lease by a tenant's guarantor will also be unenforceable. However, the Court indicated that it may be possible to get round the problem by clever drafting. A sub-guarantee, by which a tenant's guarantor guarantees the assignor's obligations under an AGA, will probably be enforceable;

Landlords will probably welcome the indication that a sub-guarantee is likely to be upheld by the courts. Tenants may also regard this as good news as it increases the options available as to the form of security which may be offered to a landlord on an assignment. Where, for whatever reason, a sub-guarantee is not an option the landlord will have to rely on due diligence or alternative forms of security, such as a rent deposit deed or director guarantees.

This is undoubtedly a complex and difficult area of law. if you would like clear and realistic advice about the legal and commercial issues that can arise in connection with AGAs, please contact Martin Banham-Hall or Caroline Wilton.

Filed: 19/12/2011 09:24:00