Can my landlord request a guarantee on a sale?
I have requested my landlord's consent to sell my pharmacy lease. The landlord has agreed to the sale but on the condition that I am a guarantor for the buyer. Is this a requirement under my lease?
The answer will depend on the terms of your lease. However, as a general rule, it is likely to be the case that the landlord can request such a guarantee.
If your lease is dated before 1996, there is no need for a guarantee to be required. This is because you will be liable for performance of the lease covenants until expiry of the lease term even if you have sold your lease to a third party purchaser. This continuing liability means that, in the event that a purchaser fails to observe and perform the pharmacy lease covenants, your landlord can require you, as the previous tenant, to remedy any breach, despite you no longer having an interest in the pharmacy.
The Landlord and Tenant (Covenants) Act 1995 (the Act), which came into force on 1 January 1996, removed a tenant's continuing liability, which was considered unfair. As a result, on the sale of a lease since that date, tenants are automatically released from such liability. This is subject to the Act permitting landlords to require an Authorised Guarantee Agreement (AGA) from the tenant – a guarantee of the performance of the lease covenants by a purchaser, until the purchaser sells the lease on.
If your lease is dated on or after 1 January 1996, you will no longer be liable under the lease following a sale of your pharmacy. Whether your landlord can require an AGA from you, to extend your liability, will depend on your lease. However, it is usual for leases to permit landlords to require AGAs as a condition of providing their consent to a lease sale. If an AGA is required, you will effectively be 'on the hook' under the lease until the lease expires or your purchaser sells the pharmacy on. An indemnity from a purchaser should be obtained on a sale, which would allow you to claim back any sums you incur as a result of such AGA. However, in the event of the purchaser's insolvency, an indemnity would be of little use.
For more information please contact Michelle Noble on +44 (0)1483 252 522 or at firstname.lastname@example.org.
This article was originally published in P3 Pharmacy, February 2016.
News & Insights
Update: The stay on business tenancy terminations continues
Coronavirus Act 2020 has now been further extended until 31 December 2020.
Relief for Private Dental Practices? – Update following the verdict of the FCA’s business interruption insurance test case
Providing clarity on compensations for dental practices who were forced to close due to the COVID-19 pandemic.
Q&A: The effect of the dissolution of a management company named in a lease
Where the named manager in a tripartite lease is dissolved, do its rights and obligations under the terms of the lease pass to the Crown?