The claimant was the original tenant under two underleases of a hotel that was located on the top floors of a multi-storey car park. Following the assignment of the underleases to the defendant, the claimant continued to be liable under a covenant for the payment of rent to the landlord. In turn, the claimant was entitled to an indemnity from the defendant, pursuant to a covenant included in the assignment by virtue of section 24 of the Land Registration Act 1925. Following several further assignments, the underleases became vested in a company that defaulted on rent payments and went into administrative receivership.
The administrative receivers, acting with the claimant’s assistance, eventually secured a sale of the underleases. In the meantime, however, the landlord served various statutory demands on the claimant for outstanding rent, which the claimant paid. A number of the demands related to periods when the rent due under a rent review had not yet been determined. Two notices demanded additional rent for those periods once a valuation had finally been reached on the rent review.
The demands were intended to comply with the requirements of section 17(2) of the Landlord and Tenant (Covenants) Act 1995. Section 17(2) permitted recovery of charges that were “now due” from a former tenant under a continuing covenant upon service, within six months of the date upon which the charges fell due, of a notice of an intention to recover them. The landlord’s demands were in the required form, namely form 1, but para 4 had been deleted. This referred to the possibility of the service of a further notice under section 17(4) should the rent due subsequently be determined to be a higher amount.
In proceedings brought by the claimant to recover under the section 24 indemnity, the defendant argued that certain of the sums paid by the claimant were not recoverable because the claimant had not, in fact, been liable to pay them. It submitted that the landlord had not been entitled to claim retrospectively for the additional amounts awarded on the rent review because, having omitted para 4, it had not preserved the possibility of the claimant being liable in a higher sum than was specified in the notices.
Held: The claim was allowed in part.
Where rent had not yet become “demandable”, because it was subject to an unresolved process of review, a landlord was none the less required to serve a notice under section 17(2) in order to preserve the original tenant’s liability in respect of such sums. Rent “now due”, within the meaning of section 17(2), meant “rent in respect of which a liability has now arisen”, even if that liability was in an amount that had not yet been determined. Where a rent review process was spread over a number of years, the landlord would be entitled to claim the subsequently determined rent from the original tenant only if it had served section 17(2) notices throughout the period, even though the current tenant had not defaulted in paying the currently demandable rent and there was no reason to suppose that the current tenant would default in paying the subsequently determined rent; the section 17(2) notice would have to specify the amount intended to be claimed as “nil”, or “nothing at the moment, but wait and see”. Although that would produce an oddity, it would fit with the underlying policy of section 17(2), which was designed to relieve a former tenant of liability unless the landlord had taken a purely formal step to preserve that liability. In the event of a long-drawn-out rent review, a landlord could protect itself against the risk of default by the current tenant by serving protective notices against the former tenant under section 17(2). By contrast, if the landlord were not required to serve notice until the reviewed rent had been determined, the former tenant might be faced with a claim years after the relevant rental period had passed, causing considerable hardship.
On that approach, the landlord’s claims were invalid in respect of the additional rent that it had sought to recover retrospectively following the rent reviews. Accordingly, the claimant was not liable to indemnify the landlord in respect of those sums. The inclusion of an invalid claim in a notice did not, however, render the entire notice ineffective in relation to amounts that were properly and timeously claimed.
Christopher Stoner (instructed by Eversheds, of Newcastle) appeared for the claimant; Edward Bannister QC and Marion Lonsdale (instructed by LHP Law) appeared for the defendant.
Sally Dobson, barrister
