Good Harvest Partnership Llp v Centaur Services Ltd

A tenant’s guarantor cannot generally be required, on an assignment, to guarantee the obligations of the assignee. Such an obligation can frustrate the release intended by the Landlord and Tenant (Covenants) Act 1995, particularly section 24. Section 16 provides the specific exception permitting a tenant to enter into an authorised guarantee agreement, but contains no equivalent permission for a tenant’s guarantor to give a direct guarantee for the assignee. An agreement imposed as a condition of consent to assignment is therefore void under section 25 to the extent that it imposes such liability.

The claimant landlord sought summary judgment against the defendant, the original tenant’s guarantor, for rent due under an authorised guarantee agreement following an assignment of the underlease. The guarantor contended that the agreement was void under section 25 of the Landlord and Tenant (Covenants) Act 1995. It also argued that there was a triable issue whether the underlease had been surrendered or further assigned. The court had to determine the statutory effect of the guarantee and whether the alternative factual case had a real prospect of success.

1. Statutory guarantee point. Section 24 of the Landlord and Tenant (Covenants) Act 1995 was intended to release a person who had guaranteed a tenant’s obligations from liability under that guarantee when the tenancy was assigned. Section 25 was a comprehensive anti-avoidance provision and, following Avonridge Property Co Ltd v Mashru [2005] UKHL 70, was to be interpreted generously so that the Act could not be frustrated directly or indirectly.
2. A further guarantee by the original guarantor for the assignee would impose obligations equivalent to those from which section 24 was intended to secure the guarantor’s release. It would therefore frustrate the operation of the Act and fall within section 25(1)(a).
3. Section 16 supplied a specific exception enabling the tenant to give an authorised guarantee agreement. The absence of any equivalent provision for a tenant’s guarantor, together with the absence of a statutory limit equivalent to that applicable to the tenant’s authorised guarantee agreement, indicated that a guarantor could not be required to give a direct guarantee for an assignee. The agreement was accordingly void under section 25 to the extent that it imposed liability on the defendant.
4. The court did not need to decide whether a guarantor could sub-guarantee the tenant’s obligations under an authorised guarantee agreement. Sections 17(3) and 18(3) did not clearly address that question, and any possible sub-guarantee would not establish a right to impose a direct guarantee on the assignee.
5. Alternative factual point. There was no direct evidence and no solid basis for inferring that the underlease had been surrendered or further assigned. The defendant had no real prospect of establishing that case at trial.
6. The guarantor therefore had a complete defence. The proceedings were dismissed.