The important bit
Landlords must not underestimate the importance of serving a notice under Section 17 of the Landlord and Tenant (Covenants) Act 1995 (the Act) when pursuing a former tenant or guarantor for arrears owed by the current tenant.
Back to basics
The Act introduced a distinction between ‘old’ and ‘new’ leases. Subject to exceptions a ‘new’ lease (for the purposes of the Act) is a lease granted on or after 1 January 1996. Leases granted before 1 January 1996 are known as ‘old’ leases. The main difference between the two relates to the ongoing liability of the original tenant.
Old leases – irrespective of whether the original tenant has assigned its interest in the lease, it will remain liable throughout the remainder of the term.
New leases – on any assignment, the original tenant will be released from liability, subject to any authorised guarantee agreement (AGA) guaranteeing the future performance of the lease covenants.
In any claim against a former tenant (under an old lease) or a guarantor (under an AGA) for ‘fixed charges’ owed by the current tenant, a landlord must serve a notice under Section 17 of the Act within six months of the fixed charge falling due. The former tenant/guarantor cannot be held liable if the landlord fails to serve within six months a valid Section 17 Notice.
‘Fixed charges’ include:
>> Service charges; and
>> Any amount payable under a tenant covenant providing for the payment of a liquidated sum in the event of failure to comply with such a covenant.
What to remember
Landlords – do not miss the six month deadline to serve a Section 17 Notice on a former tenant/guarantor. Even where a former tenant entered into an AGA on assigning its interests, a Section 17 Notice must be served.
Former tenants and guarantors – always consider whether a valid Section 17 Notice has been served. If not any claim by the landlord for ‘fixed charges’ is likely to be unsuccessful.