News of a settlement between the parties is always a good thing for those involved, but it has meant a lost opportunity for the Court of Appeal to consider the decision in EMI Group Limited v O & H Q1 Limited.
In this case, EMI Group Limited guaranteed the performance of the obligations of HMV UK Limited (which was in administration). HMV UK Limited had assigned the benefit of its lease to EMI Group Limited, and the landlord contended that the assignment was void as it offended the provisions of the Landlord and Tenant (Covenants) Act 1995 ("the 1995 Act"). The landlord's argument was that by assuming liability as tenant following the assignment of HMV's lease, EMI Group Limited re-assumed the liability it had previously had as guarantor, the effect of which was to defeat the provisions of the 1995 Act, and the assignment was consequently void. The Court supported that view.
So, without the further clarification that the Court of Appeal case could have provided, this decision is authority that a lease may not be assigned to a guarantor, but that may mean potential uncertainty, for instance, where a lease has previously been assigned to a guarantor, and how the parties deal with subsequent events, particularly where the assignment has been registered at Land Registry
A similar set of circumstances might come before the court in the future, or legislation might be brought forward to clarify the law, but until then where a tenant assigns to its guarantor the EMI decision says it will be void.