46 commercial property
Landlord and Tenant (Covenants) Act 1995 – a timely reminder
A recent report by property research company, The Local Data Company, highlighted the gathering storm in Britain’s high streets and predicted a rise in the number of empty shops in 2012, writes Andrew Taylor of Pitmans LLP
We need hardly be reminded of the reasons, given the economic backdrop, nor some of the high profile casualties including Peacocks, Barratts, Thorntons and Past Times.
But the default or potential default, of a tenant occupier, whether of retail, offices, or any other commercial property, can sometimes result in unpleasant and unexpected consequences, for a former tenant/occupier, notwithstanding a sea change in the law in that respect, enacted some 16 years ago. In an environment where landlords are increasing looking at their options to recover rent arrears, it is perhaps timely to remind ourselves of the broad principles of the law in that respect.
... a landlord of a new tenancy, may require the outgoing tenant to enter into an 'authorised guarantee agreement'
'Old' and 'new' tenancies
Before the Landlord and Tenant (Covenant) Act 1995 came into effect on January 1, 1996, a tenant who assigned his lease to a third party, invariably remained liable for any future non-payment of the rent or other breach, by his assignee, or indeed any future assignee who subsequently took over the lease. He could, in short, often be required, (under what the Act terms an “old tenancy”) to pay rent or other arrears or make good other breaches of the tenancy obligations, perpetrated by a successor to his lease. A landlord could often choose which, of more than one, potentially liable parties to pursue – usually the one remaining solvent or with the deepest pocket.
The 1995 Act sought to largely remove the perceived injustice which resulted, by providing that, with some exceptions, a tenant who assigns a lease entered into after the Act took effect (a “new tenancy”), is automatically released from his obligations (and with him, his guarantor, if any) leaving the actual current tenant/defaulter responsible for any landlord’s claim.
www.businessmag.co.uk
The principal exception is that, as the price of his consent to the assignment, a landlord of a new tenancy, may require the outgoing tenant to enter into an “authorised guarantee agreement” – an arrangement under which, in brief, the outgoing tenant in effect guarantees performance by his immediate assignee (but not any subsequent assignee, should the lease be assigned further).
It is also not always the case that a former tenant, even under an old tenancy, remains liable post assignment of his lease
All may not be lost
But for the unfortunate former tenant who receives a demand for payment from the landlord, perhaps many years after he assigned the lease, all might not be lost.
It is not unknown for lease documentation to fail to fully reflect the provisions of the Act and clauses or obligations which, on the face of it seek to hold the former tenant liable, may not be effective, as the 1995 Acts contains stringent anti-avoidance measures which can render even apparently straightforward language, void and unenforceable.
It is also not always the case that a former tenant, even under an old tenancy, remains liable post assignment of his lease – much depends upon the provisions of the actual documentation, and the history of the lease.
Further, in certain circumstances there are also time constraints which may prevent a landlord claiming arrears from a former tenant, who has not been notified of a potential claim within six months after it first arose, a requirement which applies to old and new tenancies.
Assuming, of course, that such parties remain solvent, he may also be able to claim an indemnity for his losses from the party to whom the lease was assigned (it also does not follow that that party will always be the current tenant/defaulter).
THE BUSINESS MAGAZINE – THAMES VALLEY – APRIL 2012
Andrew Taylor
In conclusion
If you are unfortunate to be on the receiving end of a claim by a landlord in respect of rent arrears or other beaches of a lease, accrued or perpetrated by an assignee, the best course is to seek expert advice as soon as possible. Inaction may not only be a worry, but just might also prejudice your position and it will often be incorrect to assume that there is no escape from liability or that there is nothing you can do to limit any losses that might result. The law in this area is particularly complex and there are a number of significant further details and exceptions to the outline above.
For those who are considering assigning a lease, including perhaps in the context of the disposal of a business, it is also as well to look closely at the issue, since the documentation entered into with the landlord at that juncture, will dictate the risk of there being a claim against you later and a landlord may not always be able to insist upon there being an authorised guarantee agreement.
Details: Andrew Taylor
ataylor@pitmans.com 020-7634-4611
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