Does the benefit of a guarantee pass on an assignment of the reversion?

This question was considered in P & A Swift Investments v Combined English Stores Group plc ([1989] AC 632, HL). Here a lease contained a surety covenant (or guarantee) that if the tenant failed to perform the lease covenants then the surety would do so. The landlord assigned the reversion but not the benefit of the covenant. The tenant failed to pay the rent and the new landlord wanted to enforce the guarantee. Had the benefit of the guarantee passed to the assignee of the reversion automatically? It would do so if the guarantee covenant could be said to ‘touch and concern’ the land. The House of Lords unanimously decided that the assignee could enforce the guarantee. Lord Templeman described a surety or guarantor as a ‘quasi-tenant’ (at 638).

Lord Oliver of Aylmerton proposed the following criteria to be applied when trying to decide on whether a covenant touches and concerns land:

‘(1) the covenant benefits only the reversioner for time being, and if separated from the reversion ceases to be of benefit to the covenantee; (2) the covenant affects the nature, quality, mode of user or value of the land of the reversioner; (3) the covenant is not expressed to be personal (that is to say neither being given only to a specific reversioner nor in respect of the obligations only of a specific tenant); (4) the fact that a covenant is to pay a sum of money will not prevent it from touching and concerning the land so long as the three foregoing conditions are satisfied and the covenant is connected with something to be done on to or in relation to the land.’ (at 642)

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