Co-operative Group Food Ltd v A & A Shah Properties Ltd and others  EWHC 941(Ch)
One of the covenants given by a guarantor in a licence to assign was construed as a sub-guarantee and was therefore valid.
The appellant (G) was the guarantor (following a transfer of engagements) under a lease granted in 2006 and expiring in 2031. The original tenant under the lease was Somerfield Stores Ltd (T).
In 2011, a licence to assign was granted by the landlord (L) and the lease was duly assigned from T to 99p Stores Ltd (A). The form of authorised guarantee agreement (AGA) required on assignment was in a schedule to the licence and a recital in the licence provided that:
“The Schedule forms part of this Licence and shall have effect as if set out in full in the body of this Licence. Any reference to this Licence includes the Schedule.”
Clause 4.1 of the licence provided that:
“The Tenant [T] and the Tenant's Guarantor [G] covenant to observe and perform the obligations set out in the Authorised Guarantee Agreement immediately after completion of the assignment.”
Clause 4.2 of the licence provided that:
“…..the Tenant's Guarantor agrees that its guarantee and other obligations under the Lease shall remain fully effective and:
(a) to the extent that any provision of this Licence varies the terms of the Lease shall apply to the Lease as varied; and
(b) shall extend and apply to the covenants given by and the obligations on the part of the Tenant under this Licence.”
Both T and A went into administration. L therefore sought rent from G.
IssueWere clauses 4.1 and 4.2 of the licence to assign direct guarantees by G of A’s obligations under the lease (in which case they were void) or guarantees by G of T’s obligations under the AGA (i.e. sub-guarantees or GAGAs) (in which case they were valid)?
- Clause 4.1 was a direct guarantee. Both T and G covenanted to observe the obligations under the AGA and the obligations under the AGA were direct guarantees of A’s obligations under the lease.
- Clause 4.2 was a sub-guarantee. The recital to the licence made it clear that the licence included the AGA. By clause 4.2(b) of the licence, G was therefore agreeing to guarantee T’s obligations under the AGA.
Points to note/consider
- Whilst this case is about interpretation, it is a useful reminder of how the Landlord and Tenant (Covenants) Act 1995 (the 1995 Act) has been interpreted by the courts. Both parties in this case accepted that the relevant case-law in this area (Good Harvest Partnership LLP v Centaur Services Ltd  EWHC 330 (Ch) and K/S Victoria Street v House of Fraser (Stores Management) Ltd  EWCA Civ 904) meant that a direct guarantee by a guarantor of an assignee’s obligations under a lease was void (as falling foul of the anti-avoidance provisions in section 25 of the 1995 Act), but a guarantee of a former tenant’s liability under an AGA was valid.
- For the sake of completeness, it is also important to remember that the case of EMI Group Ltd v O & H Q1 Ltd  EWHC 529 (Ch) decided that an assignment from a tenant to its guarantor is void (again for falling foul of the anti-avoidance provisions in section 25 of the 1995 Act).
Professional Development Lawyer
+44 (0)115 934 2019
You may be interested in...
Browne Jacobson’s Manchester dealmakers advise Spatial Global on its acquisition of Heathrow based freight specialist Hollyport Logistics
Supreme court rules on retail tenant's service charge bill
Consumer duty part 3 - 'The drill-down' into the 'cross-cutting' rules
The UK's green agenda - the outcomes of COP27 and actions since COP26
Browne Jacobson’s retail lawyers advise Wilko on its strategic £48m sale and leaseback of Nottinghamshire distribution centre to DHL
National law firm Browne Jacobson has advised long standing retail client, Wilko on the sale and leaseback of its Nottinghamshire distribution centre in Worksop to logistics specialist DHL for £48m.
Suzanne Harlow joins Browne Jacobson as Non-Executive Director
Law firm Browne Jacobson is pleased to announce that Suzanne Harlow has been appointed Non-Executive Director of its Retail, Consumer & Logistics sector.
Is this the end for free returns?
Earlier in the year a number of fashion retailers, boldly announced the introduction of a charging fee for returning any product purchased via their online store. Yet, despite this commercial, and perhaps somewhat controversial decision, at least one major fashion giant that adopted this approach has recorded ‘historic highs’ in its September profits. Browne Jacobson partner, Cat Driscoll who heads up the firm’s commercial team in Manchester and is also head of its Fashion & Beauty sector discusses whether this change has put the average consumer off and whether the days of free returns are long gone.
AI generated designs on retail products
Consumer duty part 2 - 'The drill-down' into the 'cross-cutting' rules
This article is the second in a series to help firms take a practical approach to complying with the ‘cross-cutting rules’ within the new ‘Consumer Duty’ (CD) framework. The article summarises what it seems the Financial Conduct Authority (FCA) is seeking to achieve from the applicable rules (section 2 below) and potential complications arising from legal considerations (section 3).
Luxury brands and sustainability – The challenges and solutions
The fashion industry has a mountain to climb when it comes to sustainability. More than 8% of greenhouse gas emissions come from the apparel and footwear industries, and approaching three-fifths of all clothing ends up in incinerators or landfill within a year of being made.
The Retained EU Law
Created at the end of the Brexit transition period, Retained EU Law is a category of domestic law that consists of EU-derived legislation retained in our domestic legal framework by the European Union (Withdrawal) Act 2018. This was never intended to be a permanent arrangement as parliament promised to deal with retained EU law through the Retained EU Law (Revocation and Reform) Bill (the “Bill”).
Rent arrears post-Covid: What are the landlord’s options?
Since the beginning of the pandemic, landlords and tenants have experienced significant limitations in the way rent arrears could be pursued. We first saw the moratorium on the recovery of Covid related arrears, and more recently we’ve experienced the implementation of the Covid arrears arbitration scheme.
Browne Jacobson appoints its first Non-Executive to Chair to support its corporate sector strategy board
IR35 rules to be scrapped from April 2023
The Chancellor’s recent mini-budget provided a significant announcement for business as it was confirmed that the off-payroll working rules (known as “IR35”) put in place for public and private sector businesses from 2017 and 2021 will be scrapped from April 2023.
Press Release - Careers
Browne Jacobson strengthens its UK&I commercial practice with hire of new retail & consumer specialist partner
Browne Jacobson has bolstered its commercial practice in the UK with the appointment of commercial contracts and international trade specialist, Emma Roake, into its City-based London team.
Cameras in convenience stores: a potential hornet’s nest..?
Merger and Acquisition trends in the specialist lending market
RAAC planks and its impact on local authorities
Recent reports of flat roofs constructed using RAAC planks collapsing without warning prompted the SCOSS alert.
Court of Appeal overturns “fire and re-hire” injunction
The Court of Appeal overturned the “fire and re-hire” injunction, finding that there was nothing in the express contractual provisions preventing Tesco from giving the notice to terminate employment in the usual way.
80% hours for 100% pay? That’ll do nicely
As has been widely reported this week, some 3,000 UK workers are taking part in a six month trial to assess the viability of a four-day working week without any reduction in their normal pay.
The Omnibus Directive is almost here
Amongst the measures being introduced are new rules on online reviews, price reduction promotions, enhanced rights for free digital consumers, GDPR-style fines and information requirements on online markets.
Building Safety Bill – what’s coming and how will it affect you?
In anticipation of the adoption of the Building Safety Bill, our specialist compliance and regulatory team will give an overview of the measures proposed in the Bill.
Right to Work Checks: Changes from 6 April 2022
From 6 April 2022, right to work checks on all migrant or settled prospective employees must be online and checks on British or Irish nationals will be manual (free) or digital (charged for).
W (No.3) GP (Nominee A ) Ltd and another v J D Sports Fashion Plc (Nottingham County Court, 22 October 2021)
The County Court refuses the landlord’s request to include a turnover rent in a statutory lease renewal.
Employment Tribunals 2022-23 – What to Expect
The Presidents of the Employment Tribunals England and Wales and Scotland have issued a new road map for 2022-23, providing an update on the resourcing challenges faced by employment tribunals and the steps put in place to address these.
Government’s proposals for dealing with pandemic rent arrears finally reach the statute book
The Commercial Rent (Coronavirus) Act 2022 was finally passed yesterday (24 March) and comes into force immediately.
Browne Jacobson broadens its construction offering with appointment of nuclear and renewable energy specialist
Browne Jacobson has broadened its national construction and engineering offering with the appointment of construction partner Zoe Stollard into its Birmingham office.
Covid-19 rent arrears – the questions that remain
The Government appears set to announce plans on ‘living with Covid to restore freedom’. With the success of the retail and hospitality sector key to recovery, what protections will be on offer to tenants to deal with Covid-19 rent arrears?
Are whistleblowers entitled to keep their employer’s confidential documents?
In Nissan v Passi, the High Court recently considered the issue of an employee retaining confidential documents belonging to his former employer in the context of the employer’s application for an injunction seeking the return of such documents from the employee.
Levelling up white paper strategic briefing
The levelling up white paper sets out a set of 12 priority ‘missions’ to be pursued by national and local government in the years to come. With measures covering regeneration, communities, connectivity, education, R&D, employment, and health.
High Court injunction granted to prevent “fire and rehire”
The High Court has granted an injunction against Tesco preventing the dismissal and re-engagement (‘fire and rehire’) of employees in an attempt to remove a contractual entitlement to enhanced payment terms.
Macey v Pizza Express (Restaurants) Ltd  EWHC 2847 (Ch)
A landlord did not demonstrate the requisite intention required to oppose a statutory lease renewal underground (g).
Stonecrest Marble Ltd v Shepherds Bush Housing Association Ltd  EWHC 2621 (Ch)
Where a lease provides a comprehensive scheme of repair and insurance, the court will not imply terms to cover any gaps in that scheme.
Browne Jacobson advise Sephora on its acquisition of Feelunique
Browne Jacobson’s corporate finance lawyers have advised omnichannel prestige beauty retailer Sephora on its acquisition of Feelunique.
Browne Jacobson completes acquisition of UK stand-up paddleboard leader Red Paddle Co for the Myers Family Office
Our corporate finance team have advised the Myers Family Office, on its purchase of Vian Marketing, the holding company for leading stand-up paddleboard business, Tushingham Sails which is best known in the market for its Red Paddle Co brand.
What are the implications of the recent Tesco equal pay ruling?
All of the ‘big four’ supermarkets have seen equal pay claims submitted. The majority of these cases involve workers arguing that they have not been paid equally compared to distribution centres of the business.
Dealing with Covid Rent Arrears – an overview but no specifics
Following on from our recent article on the release of the updated Code of Practice for dealing with commercial rent arrears that have accrued throughout the pandemic, we continue to highlight what the overall principles seek to ensure - fairness and proportionality for both landlords and tenants across each step of the arbitration process.
Tipping the balance: Assessing patent infringement
In July this year, four years to the month after its introduction into UK law in the Supreme Court’s seminal judgment in Actavis v Eli Lilly, the court handed down its latest decision applying the ‘doctrine of equivalents’.
Status and Substitution
In Stuart Delivery Ltd v Augustine, the Court of Appeal was asked to consider the principles governing when the ability to appoint a substitute negated the obligation to personally perform work.
The rapid grocery delivery boom
No retail and logistics specialist will have been surprised by the news that ecommerce businesses, responding to high customer demand during the pandemic, have contributed to a jump in warehouse lettings, or that one of the ecommerce disrupters within the retail sector has been rapid grocery delivery services.