UK: Lease Guarantees from Administrative Receivers

The High Court recently decided that the administrative receivers of an insolvent tenant could not be required to personally enter into an authorised guarantee agreement (AGA).

Leases granted after 1996 usually provide that before any assignment the outgoing tenant must provide an AGA guaranteeing the performance of the tenant's covenants by the new tenant. An AGA from a tenant in administrative receivership is of limited benefit to a landlord. It appears that in this case the landlord required an AGA from the insolvent tenant, which it was entitled to do, but was unable to improve its position by insisting upon an AGA from the administrative receivers.

The landlord contended that the AGA should be given by both the tenant and the administrative receivers, because it would not otherwise be effective. The appeal related to whether it was appropriate to strike out the tenant's claim for relief from forfeiture, but the judge commented that an AGA, without a personal guarantee from the administrative receivers, was still an AGA pursuant to the landlord and tenant legislation. Although useful, this case is of limited comfort to insolvency practitioners, since it does not deal with the status of a guarantee given by the insolvent tenant. It remains unclear whether a guarantee given by an insolvent tenant (in administration) will enable the landlord to contend that it is a higher ranking creditor in the insolvency. This is because the guarantee could be treated as a new contract by the tenant in administration; such contracts rank ahead of other unsecured creditors.

Meanwhile, administrative receivers, liquidators and administrators will continue to refuse to provide personal guarantees.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 22/07/2005.