Tenant cannot assign lease to its guarantor

EMI Group Ltd v O & H Q1 Ltd (2016) 30 COL 04 2291, [2016] EWHC 529 (Ch), 16 March 2016

The tenant in the dispute purported to assign the lease to a guarantor, on terms that the guarantor covenanted to pay to the landlord all sums due under the lease on the tenant’s behalf. The guarantor then sought a declaration that the tenant’s covenants were void and unenforceable by reason of section 24(2) and section 25(1) of the Landlord and Tenant (Covenants) Act 1995. The High Court considered the legislative history of the 1995 Act and the intention that a person should not remain liable under a tenancy after the tenant with whose liability he was associated had been released from his liability. Following K/S Victoria Street v House of Fraser (Stores Management) Ltd [2011] EWCA Civ 904, the High Court held that the assignment was rendered void by the anti-avoidance provision in s.25(1)(a). Otherwise, the guarantor would re-assume the same obligations in respect of the tenant covenants as it was released from on assignment, which would frustrate the operation of s.24(2)(b) of the 1995 Act. This decision is particularly important to landlords who wish to ensure that tenant covenants remain enforceable against their current tenants.