If this were not the case, a condition would have imposed obligations on the tenant`s deposit equivalent to those which Section 24 LTCA wished to release in 1995, the order of the legislation. Good Harvest has resulted in any direct guarantee of an incoming tenant`s deposit not applicable to an incoming assignee. In other words, the outgoing tenant may be obliged to enter into an AGM in order to ensure the execution of tenant alliances in the tenancy agreement by the assignee. According to the Court`s case law, it is established that the guarantor of an outgoing tenant can guarantee the performance of his obligations under the AGM as a sub-guarantee. In the co-operational group Food v A-A Shah Properties, the High Court gave guidance on the sensitive question of how a surety can effectively secure the obligations of an outgoing tenant in an approved guarantee contract without violating the Landlord and Tenant (Covenants) Act 1995. Real estate specialist Martin McKeague explains and offers practical advice. Under an approved warranty agreement (AGM), an outgoing tenant guarantees some or all of the obligations of a tenant entering into a tenancy agreement. It was introduced by Section 16 of the Landlord and Tenant (Covenants) Act 1995 (LT (C)A) 1995) to appease landlords whose position had been significantly reduced by the removal of the original liability of tenants. It applies only to “new” leases (i.e. those awarded on January 1, 1996).
A tenancy agreement granted on that date, but under a tenancy, option or court order agreement that was issued prior to that date, is not considered a “new” lease. An AGM is an agreement that requires an outgoing tenant to guarantee the performance by the new tenant or “agent” of the tenant contracts included in the tenancy agreement. The Landlords and Tenants Act came into force on January 1, 1996. The law abolished the “no contract” – the relationship between the parties in a contract that allows them to sue each other, but prevents a third party from doing so – for all new commercial leases, whereas, in certain circumstances, an outgoing tenant may be obliged to guarantee his immediate assignee. The issue was how a surety could guarantee the obligations of an outgoing tenant in an approved warranty contract (AGM) without violating the Landlords and Tenants Act (Covenants) Act 1995. This subtle and complex legislation can be important pitfalls, especially for unwary renters and anyone responsible for developing the various transfer and warranty documents. An AGM requires an outgoing tenant to guarantee the performance by the new tenant of the contracts included in the tenancy agreement, but this only applies to the subscription conditions from 1996. If the new tenant proves unreliable and unable to meet the conditions stipulated in the tenancy agreement, the assumption of the deposit jeopardizes the outgoing tenant with a significant financial cost. In the case of Good Harvest Partnership LLP/Centuar Services Ltd, the High Court held that the guarantor tenant`s direct guarantees to guarantee the assignment`s obligations in an authorized guarantee agreement (AGM) under Section 25 of the Landlord and Tenants (Covenants) Act 1995 are void. An approved guarantee contract is a specific form of guarantee that applies specifically to lease agreements concluded from 1996. The 1995 law provides that the outgoing tenant is dismissed from tenant alliances in the event of a contract and that any guarantor of the outgoing tenant is released from the guarantee at the same time. The 1995 Act contains provisions to prevent tax evasion, including preventing parties from evading this position.
However, the guarantor of the outgoing tenant cannot guarantee compliance with the obligations of the tenant contracted by the assignee, as this would be a direct guarantee and would be invalidated by the anti-avoidance provisions of the law.