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Another good harvest for landlord and tenant lawyers?

  • United Kingdom
  • Real estate

02-05-2019

Co-operative Group Food Ltd v A & A Shah Properties Ltd and another

Following the seminal judgements in Good Harvest Partnership LLP v Centaur Services Ltd and K/S Victoria Street v House of Fraser (Stores Management) Ltd, the perils of contravening the Landlord and Tenant (Covenants) Act 1995 by way of repeat guarantees of new leases are well known.

However, concerning a licence to assign completing only four months after the decision in K/S Victoria Street, this case provides food for thought and a window into a time when lawyers’ drafting was still playing catch up with case law.

The case turned on the interpretation of a guarantee clause in a licence to assign and whether it left the assignor’s guarantor giving a direct guarantee for the assignee (void under the 1995 Act) or a sub-guarantee of the assignor’s AGA (valid under the 1995 Act). Fortunately for the landlord, the High Court sifted through the drafting and found a sub-guarantee, imposing an enforceable liability on the guarantor.

Although, due to the decision being very fact specific, this case does not shed much new light on the area, the judgement did provide a bright result for the landlord who was then able to enforce the guarantee.

  • the validity of repeat guarantees is a vitally important area whenever new leases are being assigned or due diligence is being carried out on occupational leases
  • on an assignment, it is essential that an assignor’s guarantor only provides a sub-guarantee and then only of the obligations of the assignor, not the incoming assignee
  • clear drafting is fundamental 

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