by Tim Smithers
Establishing the identity of the “competent landlord” is critical to any lease renewal under the Landlord and Tenant Act 1954 (“the 1954 Act”). That identity may change during the renewal procedure and it is therefore crucial that the landlord knows when he is “competent” and that the tenant deals with the competent landlord at every stage: Rene Claro (Haute Coiffure) Ltd v Halle Concerts Society [7] 2 All ER 842, CA; Shelley v United Artists Corporation Ltd [1990] 16 EG 73.
For instance, a section 25 notice which is not served by the competent landlord will be of no effect. Similarly, a tenant’s section 26 request or reply to a section 25 notice or court application which is not served on or issued against the competent landlord may lose a tenant his right of renewal.
Identity of the competent landlord
Section 44 of and Schedule 6 to the 1954 Act contain detailed provisions for establishing the identity of the competent landlord in any particular case. The broad effect of these provisions is that he is either:
(a) the freeholder; or
(b) the owner of the lease next above the tenant, who has a reversion (whether to the contractual term date or continuing under section 24) of at least 14 months’ duration and in respect of which no notice has been served to end it within that period.
In the simplest case, where the freeholder/landlord has granted a lease to an occupying tenant, the identity of the competent landlord is clear.
Difficulties arise, however, where subtenancies are carved out of the headleasehold interest, and intermediate interests are thereby created.
Which tenant?
Before examining the rules in action it is worth while considering how a landlord, having decided that he is competent, establishes on which subtenant he should serve his section 25 notice.
Section 25 of the 1954 Act provides that the landlord’s section 25 notice must be served on the tenant, ie the tenant entitled to claim a new lease.
If that tenant is the immediate tenant, then notice is served on him. If the premises are wholly occupied by a subtenant, then the landlord must serve notice on the subtenant.
A choice arises where the premises are occupied partly by an intermediate tenant and partly by a subtenant. In such a case, the landlord may either:
(a) serve notice direct on the subtenant as well as the intermediate tenant. Care must, however, be taken to serve notice in respect of the whole premises on the intermediate tenant before serving notice on the subtenant, so that the landlord will be the competent landlord of the subtenant when notice is given. The two renewal leases will then comprise the areas occupied by the tenant and the subtenant respectively. It is worth noting that where notice is served on a subtenant, the time for service of that notice depends on the date of termination of the subtenancy, not the head tenancy; or
(b) serve notice in respect of the whole premises on the intermediate tenant, and opt to include the whole premises in the new tenancy (section 32(2) 1954 Act). Assuming that the intermediate tenant makes an application for a new lease, it will be subject to the subtenancy of part.
Illustration of the competent landlord rules in action
The following examples may assist in applying the rules in particular cases:
The landlord is the competent landlord of the subtenant. The tenant’s tenancy does not fall within section 23 of the 1954 Act because he is not in occupation of any part of the premises and automatic continuation will not apply. The landlord must serve his section 25 notice on the subtenant, and the subtenant must serve his counternotice on and issue his court application for a new lease against the landlord. The tenant takes no part in the renewal procedure (subject to the rules relating to mesne landlords — see below). If the tenant’s tenancy had, say, two years to run the tenant would be the competent landlord.
The tenant is the competent landlord of the subtenant because his tenancy will not come to an end within 14 months but will continue under section 24 of the 1954 Act (no section 25 notice or section 26 request having been served).
The landlord is the competent landlord of the subtenant because service of the section 25 notice brings the tenant’s tenancy to an end within 14 months.
It is essential that both landlord and tenant apply the tests at every stage of the renewal procedure. Take example B: the tenant has correctly served his section 25 notice on the subtenant. The subtenant, however, must not automatically assume that his counternotice and court application should be directed against the tenant. If, during the intervening period, the landlord serves a section 25 notice on the tenant (or the tenant serves a section 26 request on the landlord) the picture changes to example C. The landlord becomes the competent landlord and any step directed by the subtenant at the tenant is ineffective.
A similar situation arose in Shelley v United Artists Corporation Ltd [0] 1 EGLR 103; [1990] 16 EG 73. One significant point to emerge from that case was that if a landlord serves a section 25 notice representing himself as the competent landlord then later ceases to be competent, he will be estopped from asserting that the subtenant’s application for a new tenancy is defective in not naming the correct defendant, unless he has corrected the representation by informing the subtenant of the change of competent landlord.
The facts of Shelley were complicated, but in essence (and referring to example C) the result was that the tenant, having been granted a new lease of the whole of his premises by the landlord, was estopped from denying the subtenant a new lease of part.
The question of competence is not limited to service of notices, but extends throughout the renewal procedure. If, therefore, during the course of court proceedings the identity of the competent landlord changes, the new competent landlord should be made a party to those proceedings.
Mesne landlord
The position of the intermediate or mesne landlord must also be considered. He is defined in Schedule 6 to the 1954 Act as “a tenant whose interest is intermediate between the relevant tenancy and the interest of the competent landlord” — in other words he is the tenant in example C.
The basic principle behind the numerous rules in Schedule 6 is that mesne landlords are bound by the actions of the competent landlord. In particular:
(a) Any section 25 notice given by the competent landlord, and any agreement made between him and the tenant as to the grant, duration or terms of a future tenancy, will bind the interest of any mesne landlord;
(b) The competent landlord may give effect to any agreement with the tenant to grant a new tenancy even though the competent landlord will not be the immediate landlord at the beginning of the new tenancy — and the agreement is deemed to have effect as if the mesne landlord had been a party to it.
These rules apply even though the mesne landlord has not consented to the agreement. However, Schedule 6 also provides that if the competent landlord gives any notice or makes such an agreement without the consent of every mesne landlord, any mesne landlord whose consent has not been given is entitled to compensation from the competent landlord for any loss arising in consequence of giving the notice or making the agreement.
The competent landlord may therefore avoid liability for loss by first applying to every mesne landlord for consent which, by virtue of Schedule 6, must not be unreasonably withheld but may be given subject to reasonable conditions.
Superior landlords
It is possible that the actions of the competent landlord may also affect superior landlords. Schedule 6 provides that if the competent landlord makes an agreement with a tenant which operates during any period after the competent landlord’s interest has expired, the agreement is ineffective unless every superior landlord who will be the immediate landlord of the tenant during any part of that period is a party to the agreement. In other words, and referring to example B, if the tenant agrees to grant the subtenant a new five-year lease, the agreement is effective only if the landlord joins in. Had the landlord himself been a tenant under a headlease with a three-year residue, both the landlord and the freeholder would need to be parties to the agreement.
If a competent landlord gives a section 25 notice and within two months a superior landlord becomes the new competent landlord, the new competent landlord may withdraw the section 25 notice within the two-month period. The new competent landlord then has the right to serve a new section 25 notice if he wishes.
When a section 25 notice is given or a section 26 request received by a competent landlord at a time when his tenancy will end or can be brought to an end within 16 months (or any further time by which it may be continued under the section 36(3) or section 64 1954 Act) he must send a copy of the notice to his superior landlord. The superior landlord must send a copy to his landlord and so on up the chain to the freeholder.
Provision of notices and information
As has been seen, failure to identify the competent landlord will have serious consequences for both landlord and tenant. However, the 1954 Act is weak on its requirements for open exchange of information. Section 40 of the 1954 Act gives limited assistance.
It enables a landlord to require his immediate tenant or any subtenant to disclose whether he occupies the premises or any part wholly or partly for business purposes, and whether there is any subtenancy and if so what premises are comprised in it, what is the term and rent, who is the subtenant and whether he is in occupation and if not, what is his address.
Similarly, it enables a tenant(1) to require any superior landlord (or its mortgagee) to disclose whether he is the freeholder or mortgagee in possession, and if not, to the best of his knowledge and belief, the name and address of his immediate landlord, the length of his tenancy, and the earliest date (if any) at which the tenancy can be terminated by notice to quit given by the landlord.
The obligation to disclose information arises only during the last two years of the relevant tenant’s tenancy and where the landlord or tenant has served notice requiring disclosure in the prescribed form(2). The obligation does not extend to disclosing whether a section 25 notice or section 26 request has been served. No statutory penalty is prescribed for breach of the duties imposed by section 40, although it is suggested that a landlord or tenant suffering loss from the other’s failure to disclose the required information would be liable in damages.
Landlords often seek to extend the powers of section 40 by including in their leases a disclosure covenant on the part of the tenant to the effect that, whenever requested to do so, he must provide the names and address of all occupiers of the premises, the terms and conditions of such occupation, or any other information that may be required by the landlord in relation to any steps under Part II of the 1954 Act.
Practical steps
By way of summary, the following practical steps are suggested:
(a) both landlord and tenant should establish the chain of leasehold interests at the outset of the renewal procedure, either by service of section 40 notices or, in the case of the landlord, by making use of any disclosure covenant in the lease;
(b) if there are subtenancies and further derivative interests, establish who is the competent landlord by applying section 44 and (for the landlord) establish on which subtenants to serve section 25 notices and in which order;
(c) notwithstanding the estoppel point in Shelley, both landlord and tenant should seek confirmation from the other at every significant stage of the renewal procedure that the information originally provided in reply to section 40 notices (or otherwise) remains unchanged;
(d) if there are any mesne or superior landlords within the chain, always consider Schedule 6 to the 1954 Act and take action accordingly.
(1) That is a tenant under a tenancy for a term of years exceeding one year (whether or not continued by section 24 of the 1954 Act) or granted for a term of years certain and thereafter from year to year.
(2) Forms 9, 10 and 11. Schedule 2 Landlord and Tenant Act 1954 Part II (Notices) Regulations 1983 as amended.
