The ruling in the case of K/S Victoria v House of Fraser, which prevents tenants’ guarantors from giving authorised guarantee agreements (commonly known as ‘AGAs’) directly to landlords - even on a voluntary basis - will hurt some landlords says Sarah Godfrey, associate at Bircham Dyson Bell LLP.

She says: “The case went further than the judgment in Good Harvest Partnership LLP v Centaur Services Ltd which ruled that an AGA which is compulsorily required from a guarantor before a tenant is permitted to assign their lease, is void.

“AGAs are frequently given by outgoing tenants and their guarantors to a landlord when they assign their lease in order to guarantee that the new tenant will pay the rent and comply with the covenants in the lease. Certainly its true to say that those hardest hit by the decision are those landlords who have already granted leases which permit intra-group assignments without requiring landlord’s consent on the proviso that the tenant’s guarantor gives an AGA.

“In the future landlords can ensure that their leases are drafted so as to require that a new tenant provides a rent deposit, that the tenant’s guarantor provides a sub-guarantee (which the case confirms are still valid) or to impose minimum financial tests which a new tenant must meet.

“In the meantime unless such landlords hold other security they now find themselves without any back-up if the new tenant defaults. This is not ideal for landlords and could damage the capital value of some properties.”

However, as a result of the case tenants guarantors no longer have the option to voluntarily provide an AGA. For tenants this removes one ‘carrot’ they can give to a landlord to make a proposed lease assignment more palatable, and may make disposing of a leasehold interest just that bit more difficult, particularly in today’s economic climate.