In our May Real Estate Bulletin we wrote that leave had been granted to appeal the “AGA” Saga decision in the case of Good Harvest v Centaur in which the High Court held that a guarantee given to a landlord by the guarantor of the assignor for the liabilities of the assignee was not enforceable.
The decision had also called into question the enforceability of sub-guarantees, i.e. a guarantee given to a landlord by way of a guarantee for an assignor’s authorised guarantee sometimes known as “GAGA’s”.
The property industry has been hopeful that the High Court decision would be overturned on appeal however, those hopes were dashed by an out of Court settlement the day before the appeal hearing leaving both the High Court decision good law and continued uncertainty as to the position of GAGA’s.
Doubtless there will be an appeal of the High Court’s decision in due course but pending that consensus in the industry and our advice to landlords is to continue to require a GAGA from an assignor’s guarantor but to take account that it may not be effective. The enforceability of direct guarantees given by previous tenant’s guarantors and GAGA’s should also be very carefully considered when assessing the covenant strength on current or new assets for both investors and mortgagees.