Lease Assignments to Guarantors are deemed invalid

Leases can no longer be validly assigned to a tenant’s guarantor. The High Court has made this clear in EMI Group Limited v O & H Q1 Limited. The practical implication of this is that an assignment to a guarantor is void and therefore where a lease has been assigned from a tenant to its guarantor, the lease remains vested in the tenant and the guarantor remains the guarantor of the tenant, despite the assignment. The court’s decision applies retrospectively to any tenancy created after 1 January 1996.

Going forward – Considerations for Tenants

• Consider underletting to a guarantor as opposed to an assignment – dependent on the wording of the lease.
• Landlords are very likely refuse an assignment to a guarantor.
• Assignments to group companies may be restricted
• Do previous assignments amount to “void assignments”?

Going forward – Considerations for Landlords.

• Consider reviewing portfolios to identify any void assignments.
• Any new investments should be scrutinised in order to identify void assignments.
• There is uncertainty around the validity assignments from sole names to joint names. Be cautious.
• Consider placing restrictions on intra – group transfers.

The decision will have an effect for both landlords and tenants and will pose practical challenges particularly to corporate groups trying to organise their affairs via intra group transfers.