Law Of Guarantees All Over The Shop

House of Fraser has defeated the Landlord’s demand for a Parent Company Guarantee.

In a complex deal, House of Fraser’s Store Management Subsidiary, guaranteed by its parent PLC, was to assign its lease to a sister company. The agreement with the Landlord also required the PLC to guarantee the sister company’s obligations. The High Court decided that this commitment was unenforceable.

Earlier this year we reported on a similar case. In Good Harvest -v- Centaur the High Court ruled that a guarantor’s undertaking to stand behind its subsidiary’s Authorised Guarantee Agreement (AGA) was unenforceable – see “The day an AGA burnt out”. An AGA is a type of limited guarantee that the landlord of a lease granted since 1995 can usually require the outgoing tenant to give, when he assigns the lease.

HOF has indeed reaped a good harvest in being let off its commitment, even though the circumstances were rather different from those in the earlier case. The clear message coming from the High Court is that there will be little sympathy for clever wheezes designed to get around the restrictions on when a landlord may require an AGA.

It remains to be seen whether the Court of Appeal or Supreme Court will take a different view. For the time being at least, landlords willing to accept a particular tenant only on the strength of a guarantee may want to consider alternative or additional security such as a rent deposit. Tenants looking to assign a lease where a guarantee has been given may need to negotiate accordingly, but may be in a strong position depending on the full circumstances.

For shrewd, up to date advice on this or other commercial leasing issues contact Martin Banham-Hall or Caroline Wilton.

Filed: 06/12/2010 14:41:50