delayed rent reviews - "Common Sense Wins"
The recent judgments of the House of Lords, overturning
the controversial ruling of the Court of Appeal (CA) in Scottish
Newcastle plc -v- Raguz will be greeted with immense relief by
landlords.
background
Under the Landlord and Tenant (Covenants) Act 1995 (the Act),
'old leases' (usually those granted before 1 January 1996) preserve
the concept of original tenant liability for defaults of
successors, while 'new leases' usually provide for Authorised
Guarantee Agreements to be given by the outgoing tenants on
assignment of the lease. Where arrears of rent arise, it is
necessary in both such cases to serve a 'fixed charge' notice (in
statutory form) on the former tenant within six months of the onset
of arrears in order to recover rent from the former tenant.
the CA ruling
The CA had ruled that if a rent review determination under a
lease was delayed, any increase in rent was still 'due' for the
purpose of the Act on the rent review date, even though the amount
of increase remained to be determined and was therefore
irrecoverable until agreement or determination of the amount. The
effect of this oppressive ruling was to impose upon landlords the
burden of serving fixed charge notices on a former tenant within
six months of a rent review date and again following each quarter
day thereafter without there being any arrears and then serving yet
a further notice following the determination of any increased
rent.
the House of Lords judgments and future
action
The CA ruling did not reflect the intention of Parliament and it
is only necessary to serve one notice as the result of any increase
in rent following agreement or determination of the rent review. It
does however mean, according to the judgments, that the increased
rent must be 'recoverable' from the current tenant at the time the
notice is given. Many leases provide that the increase is only
recoverable (albeit retrospectively) on the quarter day following
agreement or determination. Accordingly, each lease must be
carefully inspected before serving such notice. Of course, if
further rent arrears accrue on subsequent quarter days, the fresh
statutory notices on a former tenant will be required.
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