Landlord and Tenant (Covenants) Act 1995 – Liability of former tenant – Notices served on former tenant demanding payment of rent while rent under review – Further notices demanding additional rent once review completed – Whether notices valid – Whether section 17(2) or (4) appropriate provision for recovery of additional rent – Whether former tenant entitled to indemnity from assignee – Appeal dismissed and cross-appeal allowed
The respondent was the original tenant under two underleases of hotel premises in London W8; the term expired in 2062 and the rent was payable quarterly in advance. In 1983, it assigned the underleases to the appellant. After further assignments, the underleases were vested in a company that defaulted on rent and went into administrative receivership. The landlord served the respondent with statutory notices, under section 17(2) of the Landlord and Tenant (Covenants) Act 1995, in form 1, to recover the rent arrears as sums “now due”. Although some of the notices were served when rent reviews were outstanding, they did not all include para 4, which referred to the possibility of claiming, under section 17(4), further sums at a later date should the rent be determined at a higher amount. Instead, the landlord subsequently served further section 17(2) notices for the additional amounts once the reviews were completed.
In the meantime, a sale of the underleases was secured. The respondent paid off all remaining arrears of rent as a condition of the landlord agreeing to that assignment. The respondent claimed an indemnity from the appellant, pursuant to section 24 of the Land Registration Act 1925, in respect of the sums paid to the landlord. In the courts below, it was held that the landlord had not followed the correct procedure for claiming the additional reviewed rent such that the respondent had not been liable for certain of the sums for which it sought an indemnity. It was held that: (i) rent “now due”, within the meaning of section 17(2), meant rent in respect of which a liability had arisen, even if that liability was in an amount that had not yet been determined; (ii) during a rent review, a landlord wanting to preserve the right to recover from an original tenant therefore had to serve notice under section 17(2) within six months of the original unreviewed rent falling due, specifying the sum intended to be recovered as nil, but subject to para 4 and the possibility of the rent being determined at a higher amount on review; and (iii) upon the reviewed rent being determined, the landlord should serve a section 17(4) notice claiming the increased amount.
None the less, the respondent was found to be entitled to an indemnity from the appellant for all sums paid to the landlord on the ground that section 24 was not limited to amounts that the landlord could compel the former tenant to make by legal proceedings but included payments that the respondent had fairly and reasonably incurred, including those it had been required to make to facilitate an assignment to a solvent assignee. The appellant appealed on the indemnity point and the respondent cross-appealed on the interpretation of section 17.
Held: The appeal was dismissed and the cross-appeal was allowed.
Per Lord Hoffmann, Lord Scott and Lord Brown: In referring to a liability “to pay any amount in respect of a fixed charge”, section 17(2) contemplated a sum that had become payable but remained unpaid and in respect of which an action for recovery could be brought against the current tenant. The words “now due” in section 17(2)(b) meant sums that were now due and payable. Where a rent review was outstanding, it referred to the pre-review rent. It was not possible to attribute to parliament the intention to create a situation in which, during the currency of a rent review, a landlord that wanted to preserve its rights against a former tenant would be obliged, whether or not there was any default by the current tenant in paying the pre-review rent, to serve a section 17(2) notice within six months of each quarter date, leaving para 4 undeleted and specifying the amount now due and unpaid as “nil”. On a proper construction of section 17(2), the fixed charge that became due on each payment date was the rent at the pre-review level; the additional rent for the period from the review date to the determination of the revised rent was a new and separate fixed charge that became “due”, for section 17(2) purposes, on the date of the determination. It followed that the landlord had properly complied with section 17 and had served all the notices necessary to preserve its rights against the respondent in respect of all the unpaid rent, including that arising on the rent review. In paying those amounts, the respondent was discharging a legal obligation and was entitled to an indemnity from the appellant in respect of them.
Per Lord Walker and Lord Hope: The wording of section 17(4) showed that a “fixed charge” might be due even though the liability was subsequently determined to be in a greater amount. However, a landlord was not obliged, during the course of a rent review, to serve section 17(2) notice to preserve the right to recover the reviewed rent, unless there was a default in a payment of the passing rent; section 17(2) applied only to a fixed charge that had actually become demandable and an actual default was a precondition for the application of that section. A landlord could not serve a section 17(2) notice in a “nil” amount while the rent review remained outstanding. However, it could serve that notice if, following completion of the review, the current tenant defaulted in paying the increase. However, the omission of para 4 from a form 1 notice would render irrecoverable any instalments of the balance of the revised rent that had already notionally accrued. Applying that construction of section 17, certain of the amounts claimed by the landlord were irrecoverable from the respondent. The courts below had correctly found that the respondent was none the less entitled to an indemnity from the appellant in respect of those amounts for the reasons they gave.
Stephen Jourdan and Marion Lonsdale (instructed by LHP Law, of Redditch) appeared for the appellant; Timothy Fancourt QC and Christopher Stoner (instructed by Eversheds LLP, of Newcastle) appeared for the respondent.
Sally Dobson, barrister
