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Group Companies

QUESTION: I am the landlord of a retail property that I let to a substantial company that has ceased trading and has no assets. A group company occupies the premises and another pays rent. Am I obliged to accept the original company as tenant on lease renewal?

On the assumption that there has not been an assignment of the lease, but that the group company occupies the premises under the group sharing provisions of the Landlord and Tenant Act 1954.

In these circumstances, at renewal the tenant will still be the tenant named in the lease and, although the occupying company may agree to a new lease, you would not be able to force them to.

However, you have a concern that future rent may not be paid if the various group companies involved choose not to assist, and the court is allowed to take that concern into consideration when determining the terms of a new tenancy.

Section 35 of the act allows the court to award the terms of the tenancy agreed by the parties or, if they are not agreed, those decided by the court. The starting point is the terms existing tenancy, but it will depart from those if appropriate. Although each case should be decided on its own facts, case law supports the court’s inclusion of a clause requiring the tenant to obtain a guarantor of its obligations.

The court has to address whether it is fair and reasonable to do so. If the tenant can no longer pay the rent and the premises are occupied by a group company, it is likely the court would exercise its discretion. It is important to argue for a guarantor and, in your case, to insist that the guarantor guarantees the tenant’s obligations under an authorised guarantee agreement.

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