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Keeping It Real Estate News and Trends in UK Real Estate, Disputes and Planning Law
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EMI and Frankenstein: Not dead yet

Last year, we blogged here on the case of EMI Group Limited v O&H Q1 Limited.  EMI was a case in which an assignment of a lease was rendered void, as it offended the provisions of the Landlord and Tenant (Covenants) Act 1995 which require tenants and guarantors to be released on assignment.  The Court confirmed that a tenant could not assign its lease to its guarantor.  It rejected the idea that the guarantor could take the benefit of the lease without the tenant covenants (a “Frankenstein’s monster” of a tenancy).  Instead, the Court decided that the entire assignment was void. In doing so, the case highlighted the “unattractively limiting and commercially unrealistic effect” of previous Court decisions which have in many circumstances hampered a tenant’s ability to assign its lease intra- group.  To the frustration of many, these restrictions on the tenant’s ability to assign apply even where all parties are prepared for and fully advised of the consequences.

The EMI case has now settled and will not go to appeal. The opportunity for the Court of Appeal to revisit, and perhaps clarify, this area of the law has, for the time being, been lost.  There is however some hope for those frustrated by the, perhaps, unintended consequences of the 1995 Act.  The Property Litigation Association (“PLA”) has submitted proposed amendments to the 1995 Act to the Law Commission, with the support of the British Property Federation, the British Retail Consortium and the Property Bar Association.  Details of the proposed amendments can be found here.  These reforms address the difficulties currently faced with intra-group assignments, along with a suite of other issues that have arisen as a result of the 1995 Act. The PLA proposes, amongst other things, to allow guarantors to give repeat guarantees in intra-group scenarios and specifically tackles the issue that arose in EMI by proposing to allow a guarantor to take an assignment of a lease.

The Law Commission will shortly announce its projects for the Thirteenth Programme of reform and many hope to find the 1995 Act on the list.