The AGA GAGA SAGA Or The Never-Ending Story?

EMI Group Limited v. O&H Q1 Limited

Like a Scandinavian drama, the AGA GAGA SAGA is compelling, dark, protracted and engaging. With each new episode there is an exciting twist as new characters contribute to the plot and the viewers try and work out what it all means.

In box set terms, the AGA GAGA SAGA has been running for five seasons – Good Harvest v. Centaur appearing in season 1 way back in 2010, K/S Victoria v. House of Fraser following in the Court of Appeal in 2012, Tindall Cobham v. Adda Hotels in the Court of Appeal in 2014 and UK Leasing Brighton v. Topland Neptune in the High Court in 2015.

The latest instalment of the popular drama is EMI Group Limited v. O&H Q1 Limited [2016] EWHC 529. In this episode the heroine of the story (Miss Amanda Tipples QC) has to make a difficult choice to determine whether the Landlord and Tenant Covenants Act 1995 (the Act) prevents an assignor's guarantor becoming the assignee of the lease.

She then has a further dilemma to grapple – if the arrangement is prevented by the Act, whether the assignment is void or just the tenant covenants in the lease.

Is the assignment precluded by the Act?

Section 25 of the Act contains a wide anti-avoidance provision. We know it is wide as the then House of Lords said as much on the London Diocesan Fund and others v. Avonridge Property Company Limited (Avonridge) case in 2005. The Act voids any arrangement that frustrates the purpose of the Act – namely the release of a tenant from its obligations upon assignment (section 5) and the release of the tenant's guarantor from its obligations upon assignment (section 24).

The Act allows for the assigning tenant to provide an Authorised Guarantee Agreement (AGA – section 16). However, the guarantor cannot provide an AGA (a GAGA). Instead, it can only provide a sub-guarantee (a SAGA). This is where the guarantor guarantees the assignor's performance of its AGA and does not guarantee the assignee's performance of the lease covenants (Good Harvest).

A tenant assignor with a guarantor cannot assign to another tenant who is then guaranteed by the same guarantor entity (K/S Victoria).

What Miss Tipples QC had to determine was whether or not a tenant can assign directly to its guarantor.

The guarantor raised a novel argument based on the guarantor being released in its status as guarantor, and then sequentially being bound to the tenant covenants in its status as assignee. The distinction is therefore drawn between the two...