Co-Operative Group Food Ltd v A & A Shah Properties Limited & Anor

A guarantor’s direct guarantee of an assignee’s lease obligations is ineffective under the Landlord and Tenant (Covenants) Act 1995. A guarantee of the former tenant’s obligations under an authorised guarantee agreement is, however, a valid sub-guarantee.

Contractual wording must be construed according to its natural meaning and commercial context. Where two available interpretations are equally plausible, the court may prefer the interpretation which gives the bargain commercial effect. That principle cannot justify a meaning unavailable on the words used.

The appellant guarantor appealed from Master Clark’s decision of 18 May 2018 on a summary judgment application. The dispute concerned guarantee provisions in a licence permitting the assignment of commercial premises.

The landlord claimed rent from the guarantor after the original tenant and assignee entered administration. The central issue was whether clause 4 created invalid direct guarantees of the assignee’s obligations or valid sub-guarantees of the former tenant’s obligations under an authorised guarantee agreement.

1. Appeal dismissed. Clause 4 imposed valid guarantee obligations on the appellant, so the Master’s conclusion in favour of the landlord was upheld.
2. Clause 4.1 could not properly be construed as requiring the guarantor to ensure that the tenant performed the authorised guarantee agreement. Its wording stated that both the tenant and the tenant’s guarantor covenanted to observe and perform the agreement. The guarantor therefore appeared to give a direct guarantee of the assignee’s obligations. Such an obligation would be nullified by the Landlord and Tenant (Covenants) Act 1995.
3. Clause 4.2(b), however, was a valid sub-guarantee. The reference to the tenant’s obligations under the licence included the tenant’s obligations under the authorised guarantee agreement created by clause 4.1. Clause 1.7 also required the schedule containing that agreement to be treated as part of the licence. The guarantor consequently guaranteed the former tenant’s guarantee obligations, rather than directly guaranteeing the assignee’s obligations.
4. The construction which preserved clause 4.2(b) was supported by the principle that, where two available interpretations are equally plausible, the court should favour the commercially workable interpretation. That principle could not support a construction unavailable on the language used.
5. The parties’ presumed legal knowledge of K/S Victoria Street v House of Fraser (Stores Management) Ltd did not alter the natural meaning of clauses 4.1 or 4.2(b). The contractual wording and commercial context were decisive.

• High Court (Chancery Division): On appeal from Master Clark’s decision of 18 May 2018, Mr Justice Mann dismissed the appeal.