Guaranteed agreements: guaranteed to cause problems

The recent case of Good Harvest Partnership LLP v Centaur Services Limited [2010] which was first reported upon in The Publican (April 26, 2010) was set for appeal and clarification in the Court of Appeal.

However, the case was settled out of court and this has left many people wanting answers to the unanswered questions on the issues surrounding the case.

Very briefly, the High Court found that on the sale of a lease a guarantor of the seller cannot be required to give a direct guarantee to the buyer of a lease, only the seller can be required to guarantee the buyer under an Authorised Guarantee Agreement (AGA).

What was not established was whether a guarantor was still "on the hook" to guarantee the seller while they guarantee the buyer under their AGA - this is known as sub-guaranteeing.

This lack of clarification has led many in the pub trade to speculate that it will be tenants and proposed tenants who will suffer, as landlords under the lease are more reluctant to consent to sales of the leases as they might lose a good guarantor.

A landlord of a lease may also require more security in the form of rent deposits, which either takes away valuable start-up money or could prevent the sale of pubs altogether and keep pub owners locked into agreements they can't afford.

It seems we will not have a definitive answer to the legal position until someone takes the matter to court, but we could be waiting some time.