EMI Group Ltd v O&H Q1 Ltd [2016 EWHC 529 (Ch) is the latest case in the saga following the 2011 decision in K/S Victoria St. v House of Fraser, relating to lease assignments and guarantors of “new tenancies” (generally meaning leases entered into on or after 1 January 1996). House of Fraser determined that a requirement that a tenant’s guarantor under a lease be required to also guarantee an assignee of the tenant’s interest was invalid under the Landlord & Tenant (Covenants) Act 1995 (LTCA), which requires that a guarantor is released from liability at the same time as the tenant whose obligations it guarantees.
In this case, EMI was HMV’s guarantor under a lease dated 26 September 1996, being a “new lease” for the purpose of the LTCA. HMV entered into administration on 15 January 2013, and so the landlord gave its consent for HMV to assign the lease to the guarantor, EMI. The assignment of the lease took place in November 2014. In December 2014, EMI wrote to the landlord stating that although the assignment was valid, the landlord could not enforce the tenant’s covenants and relied upon House of Fraser. EMI therefore sought a court declaration that (1) the assignment itself was valid and the lease was therefore vested in EMI, but (2) because of the provisions of the LTCA, EMI was not bound by the tenant covenants in the lease and the landlord could not enforce those covenants against EMI. The landlord counter-claimed, seeking a declaration that either the tenant covenants could be enforced against EMI or, alternatively, that the assignment itself was entirely void so the lease remained vested in HMV and EMI remained liable as HMV’s guarantor.
The High Court concluded that (1) a new tenancy cannot be assigned to a guarantor, so any such assignment is void, and (2) therefore, the assignor remains the tenant and the guarantor continues to guarantee the tenant’s obligations under the lease. This meant that the assignment by HMV to EMI was effectively ignored, HMV remained the legal tenant, and EMI remained liable for the tenant covenants as the guarantor.
It will be important to review all historic assignments when taking an assignment of a new tenancy, when purchasing a landlord’s interest, or when taking an underlease, in order to determine whether any historic assignments are void.
It is yet to be seen what effect the registration at Land Registry of a void assignment would have; it may be that all parties are wary of relying upon the registered title to a lease for the time being.
This case was decided in the High Court; so it may yet be appealed or overturned.
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