Pre-agreed AGA condition in a post-1995 commercial lease (LTA 1927, s.19(1A))
In 2021 Fenwick Properties Ltd granted Orla Byrne Design Ltd a 15-year lease of offices in Manchester. The lease contains a covenant not to assign without the landlord's consent, such consent not to be unreasonably withheld. It also states, for the purposes of s.19(1A) of the Landlord and Tenant Act 1927, that the landlord may require, as a condition of consent to any assignment, that the assigning tenant enters into an authorised guarantee agreement (AGA). Orla Byrne Design now wishes to assign to a large, financially strong company. Fenwick agrees to consent on condition that Orla Byrne Design enters into an AGA. Orla Byrne Design argues that the condition is unreasonable because the assignee's covenant is stronger than its own.
Which of the following best describes whether Fenwick may impose the AGA condition?
Choose one answer to see the reasoning.
Worked answer
Correct answer E: Fenwick may impose it, because a condition agreed in advance for a qualifying lease is not regarded as unreasonable, and an AGA entered into under a lawfully imposed condition is valid.
THE RULE TO REMEMBER
For a post-1995 commercial lease, a pre-agreed condition of consent (such as an AGA) is deemed reasonable under LTA 1927 s.19(1A), and an AGA covering the immediate assignee is valid under LT(C)A 1995 s.16.
Pre-agreed AGA condition in a post-1995 commercial lease (LTA 1927, s.19(1A))
The lease was granted after 1995, so it is a 'new tenancy' under the Landlord and Tenant (Covenants) Act 1995 and, being commercial, a 'qualifying lease' under s.19(1E) of the Landlord and Tenant Act 1927. Section 19(1A) provides that where landlord and tenant under a qualifying lease have agreed conditions subject to which consent to assignment may be granted, a landlord giving consent subject to those conditions is not regarded as giving it subject to unreasonable conditions. Section 1 of the Landlord and Tenant Act 1988 applies subject to this. The lease expressly entitles Fenwick to require an AGA, so the condition cannot be attacked as unreasonable, however strong the assignee. On assignment Orla Byrne Design will be released from the tenant covenants, but under s.16 of the 1995 Act it may enter into an AGA guaranteeing the immediate assignee where consent is given subject to a lawfully imposed condition to that effect.
Why A is wrong: Reasonableness is displaced by s.19(1A): a pre-agreed condition in a qualifying lease is not regarded as unreasonable.
Why B is wrong: Section 16 of the 1995 Act expressly preserves AGAs from the anti-avoidance rule in s.25.
Why C is wrong: Section 16(4) prevents an AGA from requiring the tenant to guarantee anyone other than its immediate assignee.
Why D is wrong: Continuing original tenant liability is the rule for leases granted before 1996; a tenant under a new tenancy is released on a lawful assignment.
A little more practice done.
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