UK: Continuation of Guarantees on Lease Assignment

Last Updated: 4 August 2011
Article by Simon Hartley and Nichola Padget

Originally published 29 July 2011

Keywords: tenant's guarantor, authorised guarantee agreement, AGA

The Court of Appeal has handed down judgment in K/S Victoria Street v. House of Fraser (Stores Management) Ltd1 upholding the decision in Good Harvest Partnership LLP v Centaur Services Limited2 that a tenant's guarantor is released on a lawful assignment of a lease (entered into after 1 January 1996)3 and cannot act as guarantor for the assignee either by way of an authorised guarantee agreement ("AGA") or by entering into a new contractual guarantee even if the guarantor is happy to do so.

There is, however, some good news for landlords. The Court of Appeal expressed the view that guarantors can be required to guarantee an assignor's obligations under an AGA and that they can also validly guarantee the liability of an assignee on a further assignment.

The Facts

K/S Victoria Street (the "Landlord") granted a lease to House of Fraser (Stores Management) Ltd (the "Tenant") on 26 January 2006. The Tenant's parent company, House of Fraser plc ("HOF"), acted as guarantor. The Tenant was a dormant company, but the Landlord agreed to accept it as the initial tenant to assist the House of Fraser group's tax affairs. In return, at HOF's suggestion, the lease terms provided that the Tenant would assign the lease by no later than 26 April 2006 to House of Fraser (Stores) Limited ("T2") with HOF acting as T2's guarantor.

By 2010, the lease had still not been assigned. The Landlord brought an application against the Tenant, T2 and HOF for specific performance.

The Tenant, T2 and HOF argued that the obligation to assign to T2 was unenforceable because it required HOF to be guarantor. They relied upon the Landlord and Tenant (Covenants) Act 1995 ("the Act"), as interpreted by Good Harvest, which stated that guarantor's are released on assignment and any attempt to circumvent the Act was void.

At first instance the High Court held that the requirement that HOF provide a guarantee was void. However, as the guarantee condition was in a separate sub-paragraph to the obligation to assign, the two clauses were held to be independent and the obligation to assign to T2 was, therefore, enforceable. The Landlord appealed the issue of whether HOF could be required to guarantee the assignee's performance.

The Decision

The Court of Appeal agreed with the High Court. It held that the guarantor was released by s5 of the Act and that any provision which required HOF to re-assume a liability that it was otherwise released from would frustrate the purposes of the Act, and was, therefore, void and unenforceable.

Although it was not necessary to do so on the facts of the case, the Court went on to consider whether HOF could be required to act as guarantor again if the lease were to be transferred back to the Tenant in accordance with the alienation covenant which permitted intra-group assignments without the Landlord's consent provided HOF was at all times the guarantor. It held that the alienation covenant would be enforceable on a further assignment, provided that at the time of that assignment HOF was not the guarantor of the assigning tenant.

The Court carried out a wider review of the decision in Good Harvest on the grounds that it had led to ''controversy" and "uncertainty." It concluded:

  • The tenant's release at s5 of the Act is limited by the provisions of s16 of the Act, which says that a tenant may provide an AGA guaranteeing the assignee's liability. s16 does not permit a guarantor to guarantee an assignee's liability;
  • Guarantors may not volunteer to guarantee an assignee's liability. The Court accepted that this appeared to give the Act an "unattractively limiting and commercially unrealistic effect", but held that any alternative interpretation lead to uncertainty as it would not be apparent on the face of the documents alone whether the guarantee had been provided freely;
  • s24(2) of the Act only releases guarantors "to the same extent as the tenant." In the unanimous view of the Court, a guarantor is released to the same extent as the tenant if it guarantees the tenant's liabilities under an AGA;
  • Guarantors can validly guarantee the liability of an assignee on a further assignment (whether that is an assignment back to the original tenant or a new tenant). The Court reasoned that this did not fall foul of anti-avoidance provisions at s25 of the Act since it did not alter the fact that the tenant and guarantor were released from its obligations upon the first assignment;
  • That as any contractual arrangement which has the effect of not releasing the guarantor to the same extent as the tenant with effect from the date of the assignment is void this may prohibit an assignment to the guarantor.

Permission was not sought to appeal to the Supreme Court.


The decision in K/S Victoria Street has significantly mitigated the effect of Good Harvest. It means that, although landlords cannot require a guarantor to directly guarantee an assignee's obligations, it can achieve a commercially similar effect by requiring guarantors to guarantee an assignor's obligations under an AGA. The Court went so far as to say that it might be possible for the guarantor to act as a co-guarantor under the AGA together with the assignor, but declined to determine the point. If a guarantor is a party to an AGA, it must be the case that its guarantee is clearly effective only in relation to the assignor's obligations.

One of the practical limitations of the indirect nature of the guarantors permitted continuing obligation is that it requires the tenant to enter into an AGA; the tenant is very unlikely to be prepared to do this if it is in any form of insolvency procedure.

The Court's general review of the Good Harvest decision was not related to the subject matter of the case and, therefore, is not binding authority. However, the comments will still be treated as very persuasive by other Courts and so should not be lightly ignored.


The practical consequences of the K/S Victoria Street case are:

  1. Landlords cannot contractually require, before or after the lease is granted, that a guarantee shall continue in force following an assignment;
  2. Landlords should not accept any person who was the guarantor of the immediately preceding tenant as an assignee's guarantor. If it does so, the guarantee will be void and the landlord will be left without valid security;
  3. Where assignments have already occurred, effectively transferring a guarantee from a former tenant to the assignee, a landlord cannot safely rely upon the guarantee;
  4. On receipt of an application to assign, if a landlord is entitled to require that the tenant enter into an AGA, the landlord can and should require the guarantor to guarantee the tenant's obligations in an AGA. A contractual term can be included in the lease to that effect;
  5. Alienation covenants permitting intra-group assignments without consent should be reviewed. Assignees may be required to provide a fresh guarantor of specific covenant strength or the assignor could be obliged to give an AGA the performance of which must be guaranteed by the original guarantor.

The comments made in K/S Victoria Street suggest it may be possible to structure assignments between group companies so that the lease is first assigned to one company (with a full release for the guarantor) with an immediate second assignment to a third company and the return of the guarantor. However, if the first assignment is conditional upon the second assignment the Court may hold that this contradicts the anti-avoidance provisions on the basis that the only purpose of such an arrangement is to ensure the guarantor's continued liability.

It remains the case that the tenant's guarantors are not released on an underletting. If the tenant is willing to underlet rather than assign the landlord will retain the benefit of the tenant's and guarantor's continuing liability under the head-lease.

Although the decision in K/S Victoria Street has provided some welcome clarification on Good Harvest, the Court's decision not to reverse the rule against guarantors voluntarily providing repeat guarantees will disappoint many, particularly given the significant impact it has on intra-group assignments.


1 [2011] EWCA Civ 904

2 [2010] EWHC 330 (Ch)

3 Good Harvest only applies to "new tenancies" under the Act: those completed after 1 January 1996 (s1(3) of the Act).

Learn more about our Real Estate Litigation and Real Estate practices.

Visit us at

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2011. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.