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K/S Victoria Street v House of Fraser (Stores Management) Ltd [2010] PLSCS 278

DATE: 01 Nov 2010

In K/S Victoria Street v House of Fraser (Stores Management) Ltd [2010] PLSCS 278 Mr. John Randall QC (sitting as a deputy judge of the High Court)  applied the decision in Good Harvest Partnership LLP v Centaur Services Ltd [2010] EWHC 330 (Ch); [2010] 2 WLR 1312 to the very situation which many commentators were suggesting demonstrated that Good Harvest was wrongly decided.

In January 2006, landlord, K/S Victoria Street, agreed a sale and leaseback of the former Beatties department store in Wolverhampton with companies in the House of Fraser group.  Under the agreement, House of Fraser (Stores Management) was to take a lease, guaranteed to by the group holding company, House of Fraser plc.  The Agreement for Lease also required it, by April 2006, to assign the lease to another group company, but also with a further guarantee from House of Fraser plc.  No assignment actually took place.  In March 2010 the landlord brought proceedings against all three of the House of Fraser companies seeking to enforce the assignment.

 House of Fraser relied on the decision in Good Harvest, to argue that the agreement was unenforceable because it contravened the Landlord & Tenant (Covenants) Act 1995, sections 24-25. It argued that the fundamental policy of the Act was that there should be a "clean break", so that all the liabilities of the tenants and the tenant's guarantors should terminate on assignment, save only in two statutory exceptions.  First, the clean break principle did not apply in respect of the "excluded assignments" listed in section 11; Secondly, the tenant (but only the tenant) could enter into an Authorised Guarantee Agreement.  

Counsel for the landlord argued that the decision of Newey J in Good Harvest could be distinguished from the present case and, in any event, had been wrongly decided.

Rejecting those arguments, the Judge said that the matters relied on "were not materially distinguishing factors" and that although he felt that there were "difficulties with parts of the reasoning of Newey J in Good Harvest", he felt constrained to follow the decision in Good Harvest.  He therefore held that the Act prevented a parent company that had given a guarantee to one company in the group could not give a guarantee, if the lease was assigned to another group company.

Permission to appeal has been given, but time for doing so extended until after a further preliminary issue is resolved.

Nicholas Taggart appeared for House of Fraser.
(David Holland appeared for the successful  guarantors in Good Harvest.)