Latest Information

Liability of Former Tenants under an AGA

10/05/2009

On 1st April 2009, the Court of Appeal confirmed the position of former tenants subject to an authorised guarantee agreement, where the new tenant enters into liquidation and the liquidator disclaims the lease.

Authorised guarantee agreements are commonly entered into where the tenant under a lease wishes to assign the lease to a new tenant. The authorised guarantee agreement allows the landlord to pursue the former tenant, if the new tenant defaults in payment of rent or other liabilities.

The case in question is Gabriella Shaw v Hazel Doleman. Shaw was the original tenant and assigned the lease to another company. Shaw entered into an AGA. The AGA held Shaw liable for rent during the “liability period”.

The company that took the lease by the assignment, became insolvent and entered into liquidation. The liquidator disclaimed the lease, therefore ending the lease and any further liability to pay rent. The landlord, Doleman, sought to pursue Shaw under the AGA for ongoing rent, including that after the date of the disclaimer.

Shaw argued that because the liquidator had disclaimed the lease, that her liability under the AGA was terminated as of that date forward. The court held that whilst disclaimer of the lease terminated the liability of the company, it did not affect the liability of any third party such as Shaw. She was liable for the rent going forward under the lease.

The case reminds tenants seeking to assign a lease of the significant and far reaching effect an AGA can have.