Section 17 of the Landlord and Tenant (Covenants) Act 1995 requires landlords to act quickly when tenants fall into arrears. They must serve notices on former tenants and guarantors within six months, advising them of the position, failing which they will lose the right to recover from former tenants and guarantors. If the amount due has not been finally determined, landlords must warn recipients that this is the position, and must then serve further notices, within three months of the liability being determined.
The requirements apply to all fixed charges, including rent and service charges, payable under a lease. This means that landlords should consider whether to serve protective notices, under section 17(2) of the 1995 Act, within six months of each payment date, warning former tenants and guarantors that the rent is being reviewed, or that a balancing charge may become payable following calculation of the annual service charge, and that arrears may potentially accrue. Landlords must then serve further notices under section 17(4) of 1995 Act within three months of the liability being determined, in the event htat the current tenant fails to meet any shortfall.
Section 17 of the Landlord and Tenant (Covenants) Act 1995 requires landlords to act quickly when tenants fall into arrears. They must serve notices on former tenants and guarantors within six months, advising them of the position, failing which they will lose the right to recover from former tenants and guarantors. If the amount due has not been finally determined, landlords must warn recipients that this is the position, and must then serve further notices, within three months of the liability being determined. The requirements apply to all fixed charges, including rent and service charges, payable under a lease. This means that landlords should consider whether to serve protective notices, under section 17(2) of the 1995 Act, within six months of each payment date, warning former tenants and guarantors that the rent is being reviewed, or that a balancing charge may become payable following calculation of the annual service charge, and that arrears may potentially accrue. Landlords must then serve further notices under section 17(4) of 1995 Act within three months of the liability being determined, in the event htat the current tenant fails to meet any shortfall. Lawyers and legislative draftsmen had assumed that the requirements would apply only where the current tenant was in default. However, the Court of Appeal’s decision in Scottish & Newcastle plc v Raguz [2007] EWCA Civ 150; [2007] PLSCS 46 confirms that we must think again. The legislation was enacted to enable former tenants to sleep easily in respect of a rental period once six months had elapsed without having received a protective notice from the landlord, and it applies even though the current tenant is continuing to pay the sums presently due under its lease, and the landlord has no reason to believe that the tenant is likely to default on any future payments that may accrue. The court accepted that this is likely to impose a “burden on landlords”, and could seem “pointless and inconvenient” to tenants. However, it did not feel able to construe the legislation any differently. The decision is significant for another reason. The court ruled that section 24 of the Land Registration Act 1925 requires the assignee of a lease to indemnify the outgoing tenant against expenditure that it was not legally obliged to incur. The court reasoned that the incoming tenant had promised to pay the rent and indemnify the outgoing tenant against any failure to do so. The outgoing tenant had had to discharge the arrears (even though the landlord’s failure to serve section 17 notices meant that it had no legal right to recover them) to obtain a licence to assign to stem its losses. The indemnity extended to payments that were fairly and reasonably incurred and the assignee must stand by its promise. Indemnity covenants feature in most commercial contracts, in all shapes and sizes. Covenantors may, in future, wish to examine the wording carefully to ensure that, where possible, their liability is more closely confined. Allyson Colby is a property law consultant
