In the case of Good Harvest Partnership LLP v Centuar Services Ltd, the High Court held that direct guarantees by the outgoing tenant’s guarantor to guarantee the obligations of the assignee in an Authorised Guarantee Agreement (AGA) are void under section 25 of the Landlord and Tenant (Covenants) Act 1995 (LTCA 1995) as such a condition would have imposed obligations on the tenant’s guarantor equivalent to those from which section 24 LTCA 1995 sought to release them thereby frustrating the aims of the Act. The effect of this case is that any direct guarantee from on outgoing tenant’s guarantor of an incoming assignee will be unenforceable.
The case of K/S Victoria Street v House of Fraser (Stores Management) Limited considered the validity of the outgoing tenant’s guarantor guaranteeing the outgoing tenant’s guarantee (‘sub-guarantee’). The Court of Appeal held that a sub-guarantee of the outgoing tenant’s Authorised Guarantee Agreement obligations by the outgoing tenant’s guarantor would be lawful. The Court also upheld the High Court’s ruling in Good Harvest in relation to direct guarantees.
One issue which was not settled in K/S Victoria Street was whether an assignment of a lease by a tenant to the tenant’s guarantor would be valid. This issue was addressed in the recent case of EMI Group Ltd v O & H, where the High Court held that a guarantor cannot take an assignment of a lease from a tenant. The Court held that the assignment would be void by virtue of section 25(1) LTCA 1995 as it frustrates the purpose of the LTCA 1995. In these circumstances, the lease would remain vested in the tenant and the guarantor would remain bound by its guarantee.
The case of EMI Group Ltd will be considered by the Court of Appeal in May 2017 and will have a significant impact on landlord and tenant law, particularly in relation to new leases granted after 1 January 1996.
2. Landlord and Tenant Act 1954: Compensation for failure to obtain a new tenancy
A 1954 Act protected business tenancy will not expire at the end of the contractual term but rather the tenancy will automatically continue under Section 24 until such time as it is terminated in accordance with the Act. Further, if the tenancy is terminated in one of the ways specified in the Act, business tenants normally have a statutory right to apply to court for a new tenancy and the landlord is only able to oppose the tenant’s request for a new tenancy on certain statutory grounds. If the landlord wishes to oppose the grant of a new tenancy, then it must rely on one or more of the seven grounds of opposition set out in Section 30 of the Act. If the landlord opposes the grant of a new tenancy based on a ‘no fault’ ground (grounds (e), (f) and (g), then the tenant will be entitled to compensation in respect of any improvements it has made to the property, the loss of goodwill it has built up and the costs of relocation.
The amount of compensation is the rateable value of the holding multiplied by the appropriate multiplier. The rateable value is determined by reference to the valuation list in force on the date of the landlord’s service of a Section 25 notice, or if the tenant served a Section 26 request, on the date of service of the landlord’s counter-notice. If the tenant or its predecessors in the same business have been in occupation for at least 14 years prior to the termination of the current tenancy, the tenant will be entitled to double compensation.
Any landlord considering opposing the grant of a new tenancy on a ‘no-fault’ ground should note that a new rating valuation list will come into effect on 1 April 2017. This means that if the rateable value of the property is higher in the new list, where a Section 25 notice a Section 26 counter-notice is served on or after 1 April 2017, the compensation payable to the tenant will be higher.
3. How energy efficient is your commercial property?
The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962) (Minimum Energy Efficiency Standards Regulations 2015) aims to implement the Energy Act 2011. The MEES Regulations 2015 will introduce a requirement that a landlord must ensure its non-domestic privately rented property is MEES compliant before the property can be let. A landlord may not grant a new tenancy or extend or renew an existing tenancy of non-domestic privately rented property on or after 1 April 2018. A landlord is also not allowed to continue to let a non-domestic privately rented property on or after 1 April 2023. There are a number of exemptions to the MEES requirements however, all of the exemptions are time-limited so landlords must consider as an ongoing concern whether energy efficient measures can be implemented at the property to ensure the EPC rating meets the threshold standard or whether an exemption can be invoked. Landlords should note that they will be able to register an exemption from MEES on the PRS exemption register from 1 April 2017 for non-domestic privately rented properties.
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