Lease – Guarantee – Defendant acting as guarantor for underlessee – Former landlord consenting to assignment subject to defendant entering into guarantee agreement – Claimant landlord seeking to recover unpaid rent from defendant under guarantee – Claimant applying for summary judgment — Whether guarantee void and unenforceable as against defendant – Whether triable issue existing whether underlease surrendered or further assigned – Application dismissed
By an underlease dated October 2001, G demised business premises to C for a term of 10 years. The defendant was a party to the underlease as guarantor for C. In 2004, the underlease was assigned to T. G agreed to grant a licence to give effect to the assignment subject to C and the defendant entering into a guarantee agreement.
In 2005, the claimant became the registered freeholder of the property. It brought proceedings to recover from the defendant rent due in December 2008 and March 2009, pursuant to the guarantee agreement, and applied for summary judgment in its favour. The defendant disputed the application contending that the guarantee agreement was void and unenforceable against it by reason of section 25 of the Landlord and Tenant (Covenants) Act 1995. It also argued that there was a triable issue as to whether the underlease had been surrendered or further assigned.
Held: The application was dismissed.
The Act served, inter alia, to curtail the extent to which an original tenant was liable to the landlord after it had assigned the lease. It represented a significant change in the law on a tenant’s liability after assigning the lease. In keeping with its purpose, the Act provided for tenants and others to be released from their obligations when a lease was assigned: Wallis Fashion Group Ltd v CGU Life Assurance [2000] 2 EGLR 49; [2000] 27 EG 145 and Avonridge Property Co Ltd v Mashru [2005] UKHL 70; [2006] 1 EGLR 15; [2006] 01 EG 100 considered
In the instant case, section 25 barred the claimant’s claim against the defendant. Section 24 was meant to ensure that any obligations undertaken by a person as guarantor for a tenant should come to an end on the assignment of the lease. If the guarantor was required to enter into a further guarantee when the lease was assigned, it would frustrate the operation of the Act under section 25(1)(a), in that it would, if valid, impose on the guarantor obligations equivalent to those from which section 24 was designed to secure his release. That conclusion was reinforced by the fact that section 25 was to be interpreted generously.
A premise underlying section 16 of the Act, which provided for authorised guarantee agreements (AGAs), was that a tenant could not otherwise give any guarantee, thereby representing an exception to a general prohibition. If, subject to section 16, the Act precluded tenants from giving guarantees for assignees, it was difficult to see why guarantors should not likewise be barred from giving such guarantees. Had parliament intended a tenant’s guarantor to be able to guarantee the obligations of an assignee, it would have stated so explicitly, particularly since the Act expressly referred to guarantors. It had not done so. Section 16 addressed the circumstances in which a tenant could give a guarantee for an assignee, but there was no equivalent provision dealing with guarantors. Nor did section 16 contain any reference to guarantors. The section did not indicate that an AGA could include a guarantee from any party other than the tenant. Liability under an AGA given by a tenant had to terminate when the tenant’s assignee assigned: section 16(4).
In the instant case, the defendant was required to enter into a further guarantee when the underlease was assigned to T as a condition of the grant of the necessary licence to assign. Accordingly, the guarantee agreement was invalidated by section 25 of the Act in so far as it purported to impose liability on the defendant. It followed that the defendant had a complete defence to the claimant’s claim and the proceedings for summary judgment should be dismissed.
With regard to the issue of surrender/further assignment, the court had not seen any direct evidence that the underlease had been the subject of a surrender or further assignment. Nor could it be inferred that the underlease might have been surrendered or assigned. In all the circumstances, the court would be unlikely to accept at a trial that T had surrendered or assigned the underlease. It followed that, but for the court’s conclusion on the Act point, it would have granted the claimant summary judgment on its claim. However, in the light of the conclusions on the Act point, the proceedings would be dismissed.
Romie Tager QC and Philip Kremen (instructed by Brecher) appeared for the claimant; David Holland (instructed by Osborne Clarke, of Bristol) appeared for the defendant.
Eileen O’Grady, barrister
