- We’ve heard about some of the problems arising with the interpretation of the Landlord and Tenant (Covenants) Act 1995 (“LTCA 95”). I want to look at a solution to the problems and propose an achievable means of effective reform.
PLA’s Work to Date
- The Law Reform Committee of the PLA (“LRC”) has spent many hours over a number of years in considering reform of the LTCA 95. This has flowed from the issues arising in Good Harvest, K/S Victoria, Tindall Cobham, UK Leasing Brighton and EMI.
- The legal problems created by the interpretation of the LTCA 95 have caused clear commercial problems. Despite the efforts of the judiciary, it is evident that such problems can only be resolved by legislative change.
- The commercial problems include:
- An inability for T to assign to its G;
- An inability for T to assign intra-group whilst having the same guarantor;
- Loss in value of a landlord’s interest;
- Inflexibility for a T;
- How to unwind any assignment and the issues arising upon any unwinding;
- An assignor (in the EMI situation) being bound by a tenant covenant following assignment contrary to the purpose of the LTCA 95 to release T from continuing to bound by the tenant covenants.
Approach to Reform
- There may be a number of different ways which reform could be effected. The PLA’s approach is as follows.
- Having taken soundings, our view was to address the substantive flaws whilst not re-drafting the whole statute or causing unnecessary violence to the Act or the purpose behind it. Indeed, the purpose behind the Act remains important and valid regardless of market evolution since the Act was introduced. The PLA has no intention of interfering with this purpose.
- The key principles we want to tackle in any reform are:
- Clarification that an assignor’s guarantor can provide a sub-guarantee of the assignor’s AGA. This is likely to be OK currently, though as the judicial comment on it is obiter, clarity in the LTCA 95 would be welcome.
- Allowing an assignor’s guarantor to provide a repeat guarantee to a group company assignee. There is no good policy reason why this should be prohibited.
- Permit an assignor’s guarantor to be the assignee of the tenancy. This gets round the EMI issue and causes no policy issue where all parties voluntarily and freely want this to happen.
- Providing certainty in partnership situations to ensure that A, B, C and D can assign to B, C, D and E. This is a common situation and therefore statutory clarity that this does not fall foul of section 25 would be welcome.
- With this in mind, we have drafted minor proposed amendments to the LTCA 95.
- We propose a new s24(2A) and s24(2B), together with consequential amendments.
- The drafting probably requires a little consideration, possibly with a cold towel. This is not appropriate for this forum, but the LRC would direct members to the PLA website where the proposed amends to the LTCA 95 have been published.
- In short, the amends allow for SAGAs (where the guarantor guarantees the assignor’s AGA). We did not go as far as permitting GAGAs (where the guarantor provides an AGA). The reason for this was to be consistent with the purpose of the LTCA 95 and the concept of doing as minimal damage to the wording of the Act as possible. The GAGA issue is in any event dealt with by SAGAs being allowed.
- They also allow for intra-group assignment where the assignee is guaranteed by the same guarantor where in the licence to assign there is certification from the assignor, the assignee and the guarantor that they are all group companies or otherwise sufficiently connected.
- Finally, the proposed changes allow a guarantor to be the assignee of the lease should the tenant wish to assign to the guarantor. This gets round EMI and acknowledges the different hats that a guarantor can wear as both a guarantor and a subsequent tenant.
- We have been lobbying with the Department of Communities and Local Government in respect of our reform proposals. DCLG has taken the time to meet with us and continues to be engaged.
- The PLA’s proposals have also been endorsed by industry with the British Property Federation and the British Retail Consortium both supporting our recommended reform of the LTCA 95. The Property Bar Association has also lent its support to the PLA’s proposals.
- It was unfortunate that there was no room in the Law Commission’s packed Twelfth Programme of Reform to address the flaws in the LTCA 95. However, we very much welcome the Law Commission’s evident concern with regard to the Act by their specific request for submissions at paragraph 12.48 of the Land Registration consultation.
- We have made a formal submission on behalf of the PLA and we would encourage individual firms and members to do the same. The PLA’s submission incorporates the briefing note that is available on the PLA’s website and, if convenient, there is no reason as to why individual submissions cannot be made that simply refer to and endorse the PLA’s submission.
- We, the PLA, are delighted that the Law Commission is now looking at the issue of LTCA 95 reform and we stand ready to lend any assistance that we can in order to obtain reform that is in the best interests of legal clarity and more importantly is in the best interests of the property industry as a whole.
Law Reform Committee