A supermarket and car park were leased by the owner (A&A Shah Properties) to the original tenant (Somerfield Stores Ltd) under a lease of 22 June 2006 for a period of up to 2031 (the lease). The tenant`s obligations under the lease were secured by Somerfield Ltd. In 2011, the lease was awarded to 99p Stores Ltd., and Co-operative Group Food Ltd assumed responsibility under the warranty. be an agreement in which the tenant guarantees the performance of the obligations from which the tenant has been released by the assignee. If a tenant assigns in violation of the obligation or by operation of law, the tenant has not been released (see Unauthorized Assignments and AGM), and in Co-operative Group Food v. A&A Shah Properties, the High Court has provided advice on the delicate issue of how a guarantor can effectively secure the obligations of a departing tenant in an authorised guarantee agreement. without infringing the Landlords and Tenants (Covenants) Act 1995. Martin McKeague, a litigator specializing in real estate law, explains and offers practical advice. Under an Authorized Warranty Agreement (AGM), an outgoing tenant guarantees some or all of a new tenant`s obligations under a lease. It was introduced by section 16 of the Landlords and Tenants Act 1995 (Covenants) (LT(C)A 1995) to appease landlords whose situation had been significantly reduced by the abolition of the tenant`s original liability. It applies only to “new” leases (i.e. those granted on or after 1 January 1996). A lease granted on or after that date, but based on a lease, option or court order made before that date, is not considered a “new” lease.
A second provision provided that ” . The guarantor of the tenant accepts that his guarantee and the other obligations arising from the rental agreement remain fully effective and. extends and applies to the tenant`s obligations and the tenant`s obligations under this license” The recent case Co-operative Group Food v A&A Shah Properties [1] is interesting because it provides clarification and guidance on when such a warranty will be legal and enforceable and when it will become void under the 1995 Act. When assigning a lease to which the Landlords and Tenants (Agreements) Act 1995 (1995) applies, the question of whether (and how) a guarantor can guarantee a departing tenant`s obligations under an Authorized Warranty Agreement (AGM) is a sensitive legal issue that can cause practical problems. The problem often arises in relation to intra-group assignments. An AGM is an agreement that obliges a departing tenant to guarantee the execution of the tenant contracts contained in the lease by the new tenant or the “assignee”. When the tenant and the original assignee entered the administration, the landlord attempted to claim the rent from the cooperative group under the terms of coverage above. It was for the court to determine whether the provisions constituted a valid sub-guarantee of an AGM and were therefore enforceable; or if they were invalid and unenforceable direct benefits under the 1995 Act. This case is a warning reminder to landlords that with any assignment of a lease to which the 1995 Act applies, it is not enough for assignment documentation to appear prima facie to provide sufficient guarantees to protect the landlord`s positions if/when the original or outgoing tenants do not comply with their rental or other obligations. On the contrary, the application of the 1995 Act – in particular its anti-tax evasion provisions – means that owners must ensure that all AGA guarantee agreements are properly structured to be a sub-guarantee (and not a direct guarantee) if they can be invoked and enforced against guarantors. The 1995 Law provides that in the event of an assignment, the departing tenant is released from the obligations of the tenant and each guarantor of the outgoing tenant is at the same time exempted from the guarantee.
The 1995 Act contains anti-tax evasion provisions which, in particular, prevent the parties from moving away from this position. With respect to the first provision, the High Court found that both the original tenant and the guarantor (now Co-operative Group) had undertaken to comply with the obligations arising from the AGM. The obligations therefore constituted direct guarantees of the obligations of the assignee and were null and void and unenforceable against the guarantor. These subtle and complex legal provisions can be significant pitfalls, especially for negligent owners and for anyone responsible for creating the various assignment and warranty documents. With respect to the second provision, the High Court found that it was a valid sub-guarantee. The judge explained that, since the departing tenant had a (effectively secured) commitment in the licence to transfer, comply with and comply with the provisions of the AGM, this second provision constituted a sub-guarantee to that effective guarantee. However, the 1995 Act allows the outgoing tenant to enter into an AGM to ensure the performance of tenant contracts by the assignee. and case law [2] confirms that the guarantor of the departing tenant can also guarantee the performance of the obligations of the tenant departing from the AGM. The latter is practically a “sub-guarantee”. An AGM is an agreement in which the departing tenant guarantees the landlord the performance of the obligations of the lease from which the departing tenant is exempted by the new tenant.
These obligations include (but are not limited to) the payment of rent and other expenses in the property and compliance with repair and decoration agreements. However, if a guarantor attempts to secure the performance of the obligations by the assignee, this would be a “direct guarantee”. Such a direct guarantee would violate the provisions of the Anti-Tax Avoidance Act 1995 and would be declared invalid and unenforceable. If a commercial lease is assigned (transferred) to a third party, the outgoing tenant is no longer the “tenant” under the lease and may assume that he or she has no permanent responsibility for the property. However, to assign a commercial lease, a tenant generally needs to obtain the landlord`s consent (consent must not be unreasonably withheld or delayed). If it is a “new lease” (entered into after January 1, 1996, unless it was granted on the basis of an agreement, option or court order before 1996) and it is stated that the landlord can apply for a lease, the landlord may apply for an AGM as a condition of consent. Application User`s Guide® LexisPSL”Loss Usage ScheduleThe automated schedule for unjustified cancellations of losses is designed to make creating a schedule more efficient, accurate, and easier to update….