Real Estate Update - Case Roundup, Summer 2016

EMI Group Ltd v O & H Q1 Ltd [2016] EWHC 529 (Ch)

A tenant cannot assign its lease to its guarantor. In this case the focus was whether the tenant, HMV, had legitimately assigned the lease to its guarantor, EMI, once it had entered administration. The High Court found that the effect of such purported assignment was that the assignment was void by virtue of section 25(1) of the Landlord and Tenant (Covenants) Act 1995, as it frustrates the purpose of the Act. The assignment is void and the lease remains vested in the tenant with the tenant's guarantor remaining bound by its guarantee.

This issue was one of the points that was not settled by the Court of Appeal in K/S Victoria Street v House of Fraser (Stores Management) Ltd and others [2011] EWCA Civ 904, and the decision is of particular importance where a corporate restructuring is planned and where a group company has guaranteed the obligations of another in a lease.