AGA's on renewal 1

Wallis Fashion Group Limited -v- General Accident Life Assurance Limited

Since the passing of the Landlord and Tenant (Covenants) Act 1995 we have been waiting for case authority on a number of issues raised by the statute. One of these issues relates to the imposition of an authorised guarantee agreement (AGA) on a renewal of a business tenancy. Would a requirement for an AGA on any assignment be accepted as one of the terms of the new lease? At last we have some guidance from Mr Justice Neuberger in the case of Wallis Fashion Group Limited -v- General Accident Life Assurance Limited [2000] PLSCS 66.

In this case the original lease of a shop unit in Bath contained a covenant not to assign without the landlord's consent, such consent not to be unreasonably withheld. Further, on an assignment, the assignee was obliged to enter into a direct covenant with the landlord to observe the terms of the lease.

The lease came to an end and negotiations commenced for a new tenancy under the provisions of the Landlord and Tenant Act 1954. The landlord was aware that unless the new lease provided for the tenant to enter into an authorised guarantee agreement on an assignment, the tenant would no longer be bound by the terms of the new lease after the assignment. Therefore, the landlord proposed that in any licence to assign the tenant should enter into an AGA. There would be no test of reasonableness. It would be regarded as an automatic AGA. Not surprisingly the tenant argued that the requirement for an AGA should be subject to a reasonableness test.

Mr Justice Neuberger agreed with the tenant, as the requirement for the landlord to act reasonably struck a fair balance between the interests of the parties.

Previous case law shows that there has to be a good reason for imposing any new term in a renewed lease, against the wishes of one of the parties. Just because the tenant would be in a more favourable position than under the current lease due to the passing of the ‘95 Act did not give good reason. Mr Justice Neuberger also felt that the fact that other tenants in the shopping centre had accepted the landlord's proposed wording did not affect his decision.

This case must be welcomed as giving some guidance on the terms that can be imposed in a renewed lease although it will not suit both sides of the coin. It also has to be remembered that Mr Justice Neuberger was sitting in the Bristol County Court and the case may not hold as much weight as a decision from a higher court.

For further information please contact Caroline Potter at [email protected] or +44 (0)20 7367 2721. All previously written case reviews and articles are available on our information archive which is accessible via the LawNow section of our website (http://www.cmck.com).