Assignments to guarantors

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Assignments to guarantors

Would an assignment to a company which is currently giving a primary guarantee of tenant obligations fall foul of Good Harvest/House of Fraser case law?

Assignments to guarantors - avoid for the time being?

In the case of K/S Victoria Street (A Danish Partnership) v House of Fraser (Stores Management) Ltd & Ors [2011] EWCA Civ 904, Lord Neuberger suggested that assignments to tenants’ guarantors could be void. He said that, as section 25(1) LTCA 1995 invalidated any agreement which involved a guarantor’s liability being extended beyond lawful assignment of a post-1995 Act lease (other than via a sub-guarantee of the AGA), this interpretation “would mean that, even where it suited the assignor, the assignee and the guarantor that the assignee should have the same guarantor as the assignor (because, for instance, the assignor and the assignee had the same parent company, or shared a common bank, which was the guarantor), they could not offer that guarantor. It would also appear to mean that the lease could not be assigned to the guarantor, even where both tenant and guarantor wanted it.”

These words mean that lawyers tread carefully where an assignment to a guarantor is contemplated. As a result, some leases now prohibit such assignments absolutely. Further, in the City of London Law Society Certificate of Title, the certifier is required to certify that no occupational lease is vested in a former guarantor.

Whether what Lord Neuberger said is wholly correct, or was perhaps said per incuriam, remains to be debated. However, the comment has caused a concern that can create problems if a building is ever to be sold with a former guarantor as tenant.

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