Was the government’s guarantee for an assignee valid and enforceable?

March 26, 2024

In September 2014 our Commercial Property team acted for an investment purchaser in relation to the acquisition of a new-build commercial property from a vendor which had already exchanged an agreement with the trustees of a school to grant to the trustees a lease of the property to be used as a school. The Department of Education had agreed to guarantee the obligations of the trustees. 

By a deed of assignment the trustees’ obligations in the agreement for lease were assigned to a third party, and the government guaranteed the obligations of that assignee pursuant to a deed of release and substitute guarantee. 

We advised our client that under the provisions of the Landlord and Tenant (Covenants) Act 1995 the guarantee of the Department of Education for the performance of the assignee’s obligations would probably be unenforceable. 

Our client did not wish to proceed on the risks that we highlighted.

The case was significant because all too often a guarantee is accepted at face value, when a close examination might render its enforceability questionable, and therefore the investment risk-laden.