Even though it has now been in force for nearly twenty-five years, the Landlord and Tenant (Covenants) Act 1995 (the “Act”) can still generate some interesting new points. Two of them have been considered by Ms. Penelope Reed QC, sitting as a Deputy Judge of the High Court, in EMI Group Ltd. v. The Prudential Assurance Co. Ltd.  EWHC 2061 (Ch).
EMI was the guarantor of HMV’s liabilities under its Lease of the former HMV Store on London’s Oxford Street. HMV later assigned the Lease to Forever21 Ltd. HMV gave the landlord, Prudential, an authorised guarantee agreement – an “AGA”. By the operation of the provisions in the Lease, EMI guaranteed the AGA with a “GAGA”.
When you put “Forever” in a company’s name, certain things are inevitable. In time, HMV and Forever21 became insolvent and were then dissolved. Prudential came after EMI under the GAGA for the rent.
EMI had a number of defences, most of which turned on the interaction between the proper meaning of the Lease and the anti-avoidance provisions in section 25 of the Act. EMI was unsuccessful. The Judge decided most of the case on the basis of the construction of the Lease. These points are interesting, but not as interesting as these two new points on the Act.
The first point was the operation of that anti-avoidance provision. Section 25 states that any contractual provision is “void to the extent that … it would … have effect to exclude, modify or otherwise frustrate the operation of … this Act”. EMI argued that “void means void”, so section 25 is directing the court to excise the offending words in the Lease “to the extent that” they offended the Act itself. If the words left over did not make any sense, the provision had to be discarded as nonsense. EMI contended that this follows from section 25 not supplying any power for the court to read words in to repair the damage done by removing the offending words, which is consistent with the common-law approach to void clauses: Egon Zehnder Ltd. v. Tillman  AC 154 (UKSC). Prudential contended that section 25 itself gave the court jurisdiction to read in additional words, if it was necessary to prevent the removal of the void words from emasculating the remainder of the clause. It relied on Tindall Cobham Ltd. v. Adda Hotels  1 P&CR 5 (CA).
The Judge did not need to decide the point, as she construed the Lease in a way which did not offend the Act. Had it been necessary to decide the point, she would have applied Tindall Cobham.
The second interesting point concerned equality of treatment for tenants and guarantors. Section 24 requires that, on an assignment of a lease, the tenant’s guarantor is released “to same extent” as the tenant. Under the terms of this Lease, Prudential could only require HMV to give an AGA if it was reasonable, but if it decided to demand an AGA from HMV, EMI automatically gave the GAGA. As the AGA and the GAGA only arise on an assignment, which it the prima facie termination of the tenant’s and guarantor’s ongoing liabilities, EMI contended that it was not released “to the same extent” as HMV. HMV had an opportunity to convince Prudential that was unreasonable for it to give its AGA, but EMI had no opportunity to argue it was unreasonable for it to give the GAGA.
The Judge disagreed, holding that the Act focussed on the termination of the tenant’s and guarantor’s liabilities, disregarding the circumstances in which those liabilities were imposed, even where those liabilities are an AGA and a GAGA, created in accordance with the provisions of the Act.
EMI will be seeking permission to appeal: watch this space…
Jonathan Seitler QC of Wilberforce Chambers led Nic Taggart for EMI.