Scottish & Newcastle plc v Raguz [2007] EWCA Civ 150 (Court of Appeal)
The Court of Appeal has now given judgment in the appeal of the High Court decision last April. Essentially, the judge's reasoning in the High Court was upheld as a correct interpretation of the underlying law, notwithstanding the strange practical effect.
The essence of the decision affects the recoverability of rent review uplifts from original tenants.
What the case decided:
A lease will normally provide for any uplift in rent to be paid within a certain period of the determination of a rent review. This case decided that although the uplift, or "balancing payment", is not payable until the new rent is determined, liability for the rent actually accrues at each quarter day.
Why is this case important?
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In order to pursue rents from original tenants or tenants still bound under Authorised Guarantee Agreements (AGAs), a notice must be served pursuant to section 17 of the Landlord and Tenant (Covenants) Act 1995 within 6 months of liability of the charge accruing. |
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This means that a section 17 notice in respect of the uplift must be served within 6 months of each quarter day in order for the landlord to recover the uplift from any original tenant (or tenant who is still liable under the AGA) once the rent has been determined. It also means that a section 17 notice must be served even though the current tenant is not in default and in circumstances where the so called arrears are not known! |
Commentary:
It is doubtful that this was the intended effect of the provisions - however, unless and until there is an appeal to the House of Lords, it is important to take steps to protect your position.
Action Points:
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Identify all properties where a lease has been assigned and there is an outstanding rent review. |
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If there is a prospect of an uplift, consider the prospects of recovery of the uplift from the current tenant, having regard to the amount and the strength of the current tenant's covenant. |
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If there is any doubt, then play safe and arrange for a section 17 notice to be served. |
| If you would like to discuss any issue relating to this e-update, or would like to instruct Taylor Wessing to serve section 17 notices on your behalf, please contact Saleem Fazal. |