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Arrears? Former tenant or guarantor? Think quickly!

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.

Think quickly

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:

>> Rent;

>> 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.