What Happens if a Tenant Defaults After Assignment? Lessons from Kiko v Jamino

A recent Court of Appeal case, Kiko UK Ltd v Jamino Ltd and another [2026] EGCS 77, has underlined the importance of looking at the wider commercial purpose of contractual documents, rather than taking a narrow view.

Overall, the case asks whether the guarantor retains or avoids liability when a lease is disclaimed in insolvency. There is a particular focus on how the courts interpret commercial contracts involving Authorised Guarantee Agreements (AGAs) and Parent Company Guarantees (PCGs) in a commercial property context.

For landlords, tenants, parent companies and liquidators, this case emphasises how the courts will prioritise commercial purpose and context, not just the literal wording of a contract.

Key Legal Concepts Explained

Before taking a deeper dive into the case and its outcome, it is important to first cover the key contractual mechanisms involved.

Authorised Guarantee Agreement (AGA)

An AGA is used in England and Wales when an outgoing tenant assigns a lease and it is often required as a condition of a landlord giving a tenant consent to assign a lease. The AGA sets out the outgoing tenant’s guarantee of the incoming assignee’s obligations to pay rent and perform the tenant covenants under the lease.

Disclaimer in Insolvency

Under section 178 of the Insolvency Act 1986, trustees in bankruptcy and company liquidators may dispose of property that is considered to be a burden, such as property let to an insolvent company which has obligations to pay rent. It does not affect the rights or liabilities of other parties.

Parent Company Guarantee (PCG)

In this context a PCG is used where a parent company guarantees the financial and performance obligations of a subsidiary company (tenant) for the benefit of a landlord, known as an indemnity.

Background to the Case

• Pontegadea UK Ltd let 48 Oxford Street, London, W1 1AX to Kiko for a 10 year term from 2 November 2016.
• In 2019 Kiko assigned the lease to Jamino, a subsidiary of Pianoforte.
• Kiko entered into an AGA with Pontegadea and Jamino, such that Pianoforte agreed to perform the tenant obligations of the lease as granted to Kiko.
• The parties also entered into a PCG, with Pianoforte indemnifying Kiko for losses arising from Jamino’s breach and any AGA liabilities.
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• Jamino stopped paying rent and went into creditor’s voluntary liquidation in May 2024 with the lease being disclaimed during the following month.
• In November 2024 Kiko entered into a new lease as required by the AGA

Kiko then sought an indemnity from Pianoforte under the PCG, a claim worth over £700,000. Pianoforte refused and a claim followed.

Court Proceedings

In the lower court, Kiko’s claim was dismissed on the basis that:

• the disclaimer was not a failure to pay rent or comply with tenant obligations;
• Kiko’s obligation (under the AGA) to enter into the new lease did not arise from Jamino’s failures under the lease; and
• Pianoforte was not in breach so there was no requirement to indemnify Kiko.

Kiko appealed to the Court of Appeal.  All parties agreed that when interpreting contracts, such as the AGA and PCG, it must be done on an objective basis considering what a reasonable person with all the background knowledge reasonably available would have understood the language of the contracts to mean.

The Court of Appeal found that:

Disclaimer did not end liability

The Court of Appeal rejected the argument that the disclaimer prevented the PCG from being engaged. Although a disclaimer brings the tenant’s obligations to an end in insolvency, it does not automatically release third parties from their contractual liabilities unless the agreement clearly says so. The court found no such wording in the PCG.

Wider commercial purpose of the PCG

The purpose of the PCG was to protect Kiko from the risk of Jamino becoming insolvent and the consequences flowing from that, such that Pianoforte’s liability under the PCG did not end with the disclaimer. Ending the liability in this way would require very clear words which did not exist in this case. Although the disclaimer did not cause Kiko to enter into the new lease, the liquidation, disclaimer and the new lease to Kiko were all connected.

“Arising from” should be interpreted broadly

The judge in the lower court had construed “arising from” too narrowly and losses incurred by entering the new lease were held to “arise from” the tenant’s failture. The decision highlights the importance of looking at the wider commercial background when interpreting contracts.

Why This Case Matters for Commercial Property Disputes

This decision reinforces a shift towards commercial common sense in contract interpretation, particularly in disputes involving:

• Lease assignments
• Rent recovery claims
• Insolvency-related disputes
• Guarantee enforcement

For parties involved in disputes, this has direct implications for commercial litigation outcomes and strategy.

Practical Implications

For landlords

Landlords should consider:

• Which arrangements will be put in place when your tenant want to assign their lease
• Whether they reflect the commercial reality and protect your investment if the tenant becomes insolvent

For tenantsTenants should:

• Make sure the right documentation is in place when you assign the lease
• Considerwhat will happen if the assignee defaults and whether you are adequately protected by any indemnities or guarantees

For parent companies

Parent companies would be advised to:

• Fully understand the obligations you agreeing to
• Check whether liability will extend further than expected in insolvency scenarios

How Napthens can support

A landlord making the decision to give consent to an assignment must be considered very carefully. Tenants need to make the application in accordance with the lease and in the background also think about what steps they need to take to protect themselves in the event that the assignee defaults. This might involve getting an indemnity from the assignee’s parent company.

Napthens’ commercial property and commercial property litigation teams work together to provide joined‑up advice to landlords and tenants. Our solicitors can support both landlords and tenants with:

• Applications for consent to assign including preparing and considering formal applications for consent;
• Advising on AGAs, guarantees and disclaimers;
• Resolving disputes related to invalid applications, unpaid rent and breach of landlord/tenant obligations.

Get in touch today to speak with an expert.

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