Property Law uk

Maintained by Gary Webber

Disclaimer

This page deals with two issues;
  • The position of a guarantor under an AGA where there is a disclaimer; and
  • The obligation of a guarantor to take a new lease on disclaimer.

Authorised guarantee agreement

Liability of guarantor on disclaimer

Shaw v Doleman
[2009] EWCA Civ 279

Summary

A guarantor under an authorised guarantee agreement ("AGA") was bound to perform the covenants in the lease following disclaimer by the tenant’s liquidator even where the AGA was expressed to be limited to the period during which the insolvent tenant was bound by the lease covenants.

Facts

The defendant was originally the tenant of a small retail unit under the terms of a lease for 10 years from March 2004. The lease contained the usual qualified covenant against alienation. It further provided that on assignment the landlord could require the assignor to enter into an AGA in the form set out in the lease.

The defendant ("the guarantor") assigned her lease to a company and entered into an AGA with the landlord. Under the AGA, she guaranteed payment of rent and performance of the tenant’s covenants (and to make good any loss where the company failed to do so). The guarantee was expressed to remain in force for “the period during which [the company] is bound by the tenant covenants in the Lease” (“the liability period”).

The company encountered financial difficulties, became unable to pay its rent and subsequently went into liquidation in August 2007. The liquidator disclaimed the lease under s178(4) of the Insolvency Act 1986 in October 2007.

By this time, the claimant was the landlord under the terms of the lease and sought to recover the arrears of rent from the guarantor in the sum of £16,921.87. She maintained that as the lease had been disclaimed, she had no further liability to the landlord under the terms of the AGA.

Decision

The question before the court was whether the ‘liability period’ defined in the AGA had come to an end on the disclaimer, thus releasing the guarantor from her liability under the AGA? The court held that, in order to determine whether or not the ‘liability period’ had expired it was not possible to look at the AGA without also looking at the statutory provisions.

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