Following the decision in the Good Harvest case the Court of Appeal has held that the relevant provisions of the Act prevent a Guarantor guaranteeing the obligations of an incoming Tenant.
All is not lost however as the Master of the Rolls, Lord Neuberger, did confirm that the Act did not prevent a Guarantor from guaranteeing the obligations of the outgoing Tenant under the terms of any Authorised Guarantee Agreement (AGA) so in effect the Guarantor could act as a Sub-Guarantor for the outgoing Tenant’s obligations even if his guaranteeing the incoming Tenant is now prevented by this decision.
This will be of comfort to Landlords and it is to be expected that well advised Landlords will now insist upon Guarantors guaranteeing the obligations of the outgoing Tenant under an AGA as a standard requirement, where it is reasonable for the Landlord to do so.
Tenants will need to bear in mind that incoming Tenants may well be required to compensate Landlords for the lack of a Guarantor's continuing liability by providing additional collateral.
This is an important decision affecting many Landlords. Landlords interested in reviewing their existing documents and their management policy as a result of this decision can contact Jeremy Palmer.