High Court confirms a tenant cannot assign to its guarantor

High Court confirms a tenant cannot assign to its guarantor
The High Court has approved the obiter dictum in K/S Victoria Street - a tenant cannot assign to its guarantor. This is prohibited under the Landlord and Tenant (Covenants) Act 1995 (LT(C)A 1995)

Background

EMI Group Ltd v O & H Q1 Ltd (2016) EWHC 529 (Ch)
A tenant went into administration. The landlord gave licence for the tenant to assign to guarantor and the lease was assigned the same day.Subsequently, the guarantor asserted that, although the assignment of the lease to it was valid, the landlord could not enforce the tenant's covenants in the lease against it. The guarantor relied on the obiter remarks of Lord Neuberger in the Court of Appeal's decision in K/S Victoria Street in support of this proposition.

What is the law in this area?

When the tenant of a new lease is released following a lawful assignment, the guarantor is released 'to the same extent'.

In some instances a landlord might prefer to take an authorised guarantee agreement (AGA) from the tenant’s guarantor as opposed to the tenant. However, LT(C)A 1995, s 16(2) provides that the outgoing tenant must give the AGA. Consequently, an agreement requiring the guarantor (as well as or instead of the tenant) to give an AGA would fall foul of the anti-avoidance provisions in LT(C)A 1995, s 25.

In K/S Victoria Street, the Court of Appeal confirmed that the High Court ruling in Good Harvest was correct. A tenant’s guarantor cannot agree to give, nor give, a guarantee for the tenant’s assignee other than by guaranteeing the tenant’s obligations under an AGA.

Lord Neuberger acknowledged that this approach meant that a lease could not be assigned to a guarantor, even where both tenant and guarantor want it. This conclusion was obiter, as it was unnecessary to the decision.

The focus of the argument in EMI was, on the correct interpretation of LT(C)A 1995,

Subscription Form

Related Articles:
Latest Articles:

Already a subscriber? Login
RELX (UK) Limited, trading as LexisNexis, and our LexisNexis Legal & Professional group companies will contact you to confirm your email address. You can manage your communication preferences via our Preference Centre. You can learn more about how we handle your personal data and your rights by reviewing our  Privacy Policy.

Access this article and thousands of others like it free by subscribing to our blog.

Read full article

Already a subscriber? Login

About the author:
Joanna is a commercial property specialist. Prior to joining the LexisPSL Property team, she was a transactional lawyer. She qualified in 1995 at Shoosmiths and subsequently worked at Nabarro, Charles Russell, Bircham Dyson Bell and Pemberton Greenish. She has wide-ranging experience of all non-contentious property transactions, with a particular emphasis on landlord and tenant work.