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MIKE GUTSELL of Osborne Clarke in Bristol summarises the implications of the recent judgement regarding AGAsThe summary judgement in Good Harvest Partnership LLP v Centaur Services Limited contains worrying news for commercial landlords. The judgment clarified†the interpretation of the Landlord and Tenant (Covenants) Act 1995, particularly the role of Authorised Guarantee Agreements (AGAs).
In a nutshell, the decision means that tenants guarantors can no longer be forced to enter into guarantees of AGAs on assignment of a lease to a new tenant. Guarantees provided†by the guarantors of former tenants are now invalid.
As a result of this decision landlords may find that, in the case of default by their assignee tenants, the strength of the covenants provided in AGAs that they had to fall back on may now have substantially weakened. So, for example, where a holding company enters into a lease, guaranteed by its parent, and subsequently assigns to another tenant, the landlord is now only able to rely on the covenant strength of the holding company under the AGA if the new tenant fails to pay the rent.
On the other hand, former guarantors that entered into AGAs on assignment may now no longer need to worry about contingent liabilities and the ghost of previous guarantees coming back to haunt them.