Authorised Guarantee Agreements and anti-avoidance issues
Authorised Guarantee Agreements and anti-avoidance issues

The following Property guidance note provides comprehensive and up to date legal information covering:

  • Authorised Guarantee Agreements and anti-avoidance issues
  • Background—Landlord and Tenant (Covenants) Act 1995
  • Good Harvest
  • K/S Victoria Street
  • Tindall Cobham
  • Topland
  • EMI Group Ltd v O & H Q1 Ltd
  • Remaining areas of uncertainty
  • Summary

Background—Landlord and Tenant (Covenants) Act 1995

Landlord and Tenant (Covenants) Act 1995, s 5(2)(a) provides that if:

'a tenant assigns the whole of the premises demised to him,... he is released from the tenant covenants of the tenancy... as from the assignment'.

LT(C)A 1995, s 24(2) addresses the position of guarantors:

'[where] immediately before the release another person is bound by a covenant of the tenancy imposing any liability or penalty in the event of a failure to comply with that tenant covenant, then, as from the release of the tenant, that other person is released from the covenant... to the same extent as the tenant is released from that tenant covenant.'

LT(C)A 1995, s 16 provides for, as a concession to landlords, the concept of an 'authorised guarantee agreement' ('AGA') by which, in certain circumstances, a tenant can guarantee the obligations of its assignee until the tenancy is assigned again.

LT(C)A 1995, s 25 sets out what Lord Nicholls in Avonridge described as a 'comprehensive anti-avoidance provision'.

These provisions were the focus of a series of cases in the context of guarantors' liability. In this Practice Note the terms 'T1', 'T2' and 'G' mean the original tenant, the assignee and the original tenant's guarantor respectively.

Good Harvest

Good Harvest concerned an AGA whereby both T1 and G, Centaur, purported to guarantee the performance