In our latest blog post, Partner in the Real Estate Team, Owen McKenna, looks at recent developments in landlord and tenant matters including guarantor’s liability and undocumented occupation.

Landlord and Tenant – guarantor’s liability not affected by restructuring plan

Oceanfill Ltd v Nuffield Health Wellbeing Ltd & Anor relates to a claim under an authorised guarantee agreement (AGA) for unpaid rent.  Nuffield Health had taken a 25-year lease of a gym in 1998. Its lease obligations were guaranteed by a parent company and on an assignment of the lease in 2000 to Virgin Active Limited (VAL), the terms of the landlord’s consent to the assignment provided that VAL’s obligations were guaranteed by Nuffield Health under an AGA, and Nuffield’s parent company guaranteed Nuffield’s obligations under the AGA.

The September 2021 and December 2021 quarter’s rent went unpaid.  VAL did not pay these quarters’ rents because in May 2021 the High Court had approved a restructuring plan for VAL under Part 26A Companies Act 2006.  The restructuring plan provided that “obligations and liabilities (whether past, present or future including dilapidations claims and claims in respect of … Lease Rent Arrears) … shall be irrevocably and unconditionally compromised, released, discharged and brought to an end”.

As VAL’s obligations had been compromised by the restructuring plan, the landlord was claiming the unpaid rent from Nuffield under the AGA and/or from Nuffield’s guarantor under the guarantee of the AGA.  Nuffield argued that the restructuring plan had operated to vary the lease, so the lease rents were no longer payable, meaning that there was no liability under the AGA or the guarantee of the AGA.  The Court held however, that a restructuring plan does not affect the rights of the landlord against third party guarantors.  As such, between the landlord and any third parties i.e., guarantors, who are not a party to a restructuring plan, the lease remains valid and subsisting and the guarantors remain liable under the terms of their guarantee.

Landlord and Tenant – undocumented occupation of premises

The Court in Valley View Health Centre and others v NHS Property Services Ltd was asked to consider a number of issues affecting premises occupied by five NHS GP partnerships.  Within these cases, the Court considered the status of two tenancies (Valley View Health Centre in Hertfordshire and at St Andrews Medical Centre, Salford) and explored whether the GP partnerships occupied on the basis of implied periodic tenancies or tenancies at will.  The status of a tenancy may well be important because a periodic tenancy, assuming business occupation by the tenant, may well qualify for the security of tenure protection of the Landlord and Tenant Act 1954.

In the Valley View case, the GP partnership had occupied on an undocumented basis since 2007. There had initially been negotiations for the grant of a formal lease of the premises from the landlord (between 2007 and 2011 although not intense negotiations) and those discussions changed over time to consider the possibility of the partnership acquiring by assignment the landlord’s own lease of the premises.  The Court said that the circumstances in which a tenancy at will can arise are wide and the question is always whether the parties intended that the occupation shall only continue at the will of the parties.  If negotiations are on foot, then this is evidence that the parties’ intention is that there should be a new lease on terms to be agreed.  The Court in this case held that the GP partnership occupied as a tenant at will.

In the St Andrews case, the tenant remained in occupation of the premises after the expiry of its contracted-out lease in 2019.  There were no current on-going negotiations for a new lease as discussions had ceased prior to the expiry of the lease in 2019 when the parties were unable to agree service charge provisions.  Notwithstanding negotiations were not live, both parties were of the intention that a new lease excluded from the Landlord and Tenant Act 1954 would be granted and the Court considered that in these circumstances it would be correct to imply a tenancy at will rather than a periodic tenancy.