The decision of the High Court in EMI Group Ltd v O & H Q1 Ltd  EWHC 529 (Ch) concludes that a guarantor is absolutely precluded from becoming the assignee on an assignment by the tenant whose tenant covenants he is guaranteeing. The reasoning behind this is that the effect of such an assignment is that the guarantor, as tenant, re-assumes precisely the same liability in respect of the tenant covenants as it is released from on assignment and that re-assumption frustrates the release of the guarantor under section 24(2)(b) Landlord and Tenant (Covenants) Act 1995.
In this case the Judge ruled that a purported assignment of a lease by the tenant to its guarantor completed in 2014 was void and of no effect. The lease remained vested in the original tenant and the claimant remained liable as the original guarantor.
The case needs to be borne in mind when considering the current tenant’s title to the property and whether at some stage in the past title may have been rendered defective due to a void assignment to a guarantor leaving all future tenants without a valid and enforceable leasehold interest. It is also of utmost relevance to a landlord who may be concerned to ensure that it can validly enforce the tenant’s duties and obligations against the current tenant.
This is where we can assist. Legal indemnity insurance can provide a solution to situations where your client is concerned about the validity of its leasehold title or indeed the validity of its current tenant’s status.
So don’t let sleepless nights disturb you – contact one of the members of our legal indemnity team on 0151 255 2620 for assistance.