Overview

For landlords, guarantees are a vital component in delivering covenant security and capital value. For entities backing tenants, they are potentially onerous and enduring obligations.
A parallel guarantee is given on an assignment. Under it, the outgoing tenant's guarantor agrees to guarantee the outgoing tenant's AGA obligations. The outgoing tenant will usually have been required to give the AGA to secure the incoming assignee's obligations under the lease.
Since the Landlord and Tenant (Covenants) Act 1995 (the Act) came into force on 1 January 1996, there has been much debate about the validity of parallel guarantees. Are they caught by the anti-avoidance provisions of section 25 of the Act?
In practice, most leases and licences to assign require an outgoing guarantor to give a parallel guarantee; albeit with the advice that they may not work. The assumption that they were effective had begun to grow. However, Mr Justice Newey's decision in Good Harvest Partnership LLP v Centaur Services Limited on 23 February 2010 casts considerable doubt on this.