Posted by Caroline Preist, Partner
The AGA GAGA Saga
Disclaimer: This story is not about the saga of Lady Gaga cooking on an Aga (unfortunately). Authorised guarantee agreements (AGAs) have been featured in a string of court cases dating back to 2005. These have included whether the performance of the AGA can be guaranteed by a guarantor (known as a GAGA) and now whether a lease can be assigned to the tenant’s guarantor.
We know already from case law that a guarantor can indeed guarantee a tenant’s performance of its AGA, but that the guarantor cannot directly guarantee the performance of the lease by the new assignee.
In EMI Group Ltd v O&H Q1 Ltd, heard in March this year, the court has found that a tenant cannot assign its lease to its guarantor, despite this being a not uncommon occurrence in group company restructuring. The court held that such assignments are void and as a result the lease still remained with the original tenant even though the parties to the deal were happy with and agreed to the arrangements.
The court’s decision leads to a number of practical and legal problems for which the court, in its wisdom, did not provide answers – hence the ‘saga’. There is no doubt that many more court cases will be forthcoming before the ramifications of the EMI case have worked their way through. This line of cases could run and run!
In particular the problems that may occur will include:
- the possibility of security of tenure having been achieved where a landlord having invoiced a guarantor (believing the lease had been assigned to the guarantor) for rent and that guarantor having paid the rent for in excess of six months
- whether a landlord in these circumstances is entitled to treat its former, now current, tenant as being in breach of lease for allowing the guarantor to occupy the property
- the position of HM Land Registry where the guarantor has registered its title to the leasehold interest
- whether, if rent is not paid section 17 notices should be served on the former tenant or the former guarantor.
Our surveyors’ seminar on Thursday 30 June will be an opportunity to discuss these, and other related issues, with the team in our Bath office.
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