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Archive for April, 2016

Have the courts gone too far re guarantors?

In our March 2010 newsletter we considered the judgement of Mr Justice Newey in the case of Good Harvest Partnership LLP v Centaur Services Limited [2010] EWHC 330 (Ch).  Looking at the Landlord and Tenant (Covenants) Act 1995 (’the Act’), he concluded that if a landlord were able to call on the tenant’s guarantor to give a guarantee for an assignee it would drive “the proverbial “coach and horse” through the legislation”.  Therefore, despite the wording of the lease, which required the tenant and its guarantor to enter into an authorised guarantee agreement (’AGA’) upon any assignment, he stated the landlord was unable to pursue the tenant’s guarantor after the tenant’s assignment of its leasehold interest.

Cases pursuant to the Act have rumbled on since the Good Harvest case and have come to the fore again in the judgement of Miss Amanda Tipples QC in EMI Group Ltd v O & H Q1 Ltd [2016] EWHC 529 (Ch).  In this case, it was the tenant who wished to assign its own interest to its guarantor.  Miss Tipples stated “The conclusion I have reached is that a tenant is precluded under the Act from assigning the tenancy to its guarantor and any agreement which seeks to give effect to such an arrangement is void by reason of section 25(1) as it frustrates the purpose of the Act.”  In so holding, she gave a judgement anticipated by Lord Neuberger in an obiter comment made in the Court of Appeal decision of K/S Victoria Street v House of Fraser (Stores Management) Ltd [2012] Ch 497 in which he said that s25(1) of the Act would appear to mean that a lease “could not be assigned to the guarantor, even where both tenant and guarantor wanted it”.

In the Good Harvest case, Mr Justice Newey said the Act “is plainly designed to impose restrictions on freedom of contract.  The question is how far those restrictions go”.  Some commentators are saying “too far”.  If Miss Tipples’ judgement is appealed, it will be interesting to see if higher courts agree.

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