The Court of Appeal will not be considering whether assignments of leases to guarantors really are void now that the parties in the case of EMI Group Limited v O & H Q1 Limited have settled on confidential terms.
In this case, HMV was granted a lease of commercial property, guaranteed by EMI Group Limited. When HMV went into administration, the landlord granted consent to the assignment of the lease to the guarantor company. Subsequently, EMI Group applied to the High Court for a declaration that although the legal interest in the tenancy was vested in it, the tenant’s covenants in the lease were void.
The High Court held that a tenant cannot assign a lease granted after 1 January 1996 to its guarantor as the effect of such an assignment was that the guarantor, as assignee, was re-assuming precisely the same liability in respect of the tenant covenants on the lease as it had been released from on assignment. This frustrated the statutory release of the guarantor on assignment under the Landlord and Tenant (Covenants) Act 1995. The assignment was therefore rendered void.
The settlement of this case means that the High Court decision is good law but it is disappointing that there will be no Court of Appeal hearing which would have given property professionals greater confidence in the law as it stands.