PLA Briefing Note to Proposed Amendments to the Landlord & Tenant (Covenants) Act 1995

 

Executive Summary

  1. The Landlord and Tenant Covenants Act 1995 is an impediment to parties:
    • intending for a guarantor of a lease to guarantee an assignee of the same lease;
    • intending for a guarantor of a lease to be the assignee of the lease;
    • seeking to perform an intra-group restructuring;
    • dealing with transfers between business partners.
  2. The Act invalidates the provision of repeat guarantees, even where the parties intend for the guarantee to be provided, or it is freely offered.
  3. The Act fetters tenants from  being able to restructure their property holdings.
  4. An invalid guarantee can result in significant value being eroded from the value of the landlord’s property.
  5. The Act creates further unnecessary complications and uncertainty in respect of joint ownership situations.
  6. The Court of Appeal has considered the Act in K/S Victoria Street v House of Fraser. The decision of the Court of Appeal has highlighted the commercial problems arising from the manner in which the Act is to be interpreted. At present there is an inherent conflict between the desire of landlords and tenants to freely contract and the operation of the anti-avoidance provisions of the Act.
  7. The Property Litigation Association has given serious thought to (and consulted its members and industry stakeholders)  as to how the Act might be reformed in order to achieve commercial effect without offending the anti-avoidance aims of the Act when originally enacted.
  8. The PLA has prepared this proposal and has advanced and consulted upon draft amendments to the Act that are appended to this proposal.
  9. The PLA has the support of the property industry and has received endorsement for the proposal from the British Property Federation, the British Retail Consortium and the Property Bar Association.
  10. The PLA welcome consideration of this proposal and further discussion with the DCLG in order to understand how best to effect much-needed reform of the Act.

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