There is a deadline fast approaching for the service of a notice to retain your right to claim June quarter arrears from a former tenant or former guarantor.
If the answers to both questions 1 and 2 below are "yes" then you need to take action as soon as possible, in order to serve the necessary notice by 23 December. Given Christmas post the notice should be sent out as soon as possible.
- Do you have arrears of rent, service charge or other charges due under a lease for this year's June quarter day? and
- Is your tenant not the original tenant and either (a) you have the benefit of an Authorised Guarantee Agreement or (b) the former tenant's obligations were guaranteed under a guarantee of the AGA or (c) the lease was granted before 1996?
If so, you need to serve a s.17 notice on the former tenant or guarantor within 6 months beginning with the date that the arrears fell due. Otherwise you lose, for ever, the right to claim those arrears from the former tenant or guarantor. The usual quarter day for June falls on 24 June and so in most cases the notice must be served by 23 December 2020. However, if you have different quarter days, the notice deadline will be different.
See below for more details. Please note that section 17 notices do not need to be served on the guarantors of current tenants.
What is a s.17 notice?
Where a lease is assigned it is common to require the outgoing tenant to provide an Authorised Guarantee Agreement ("AGA"). If there was a guarantor, you may also have obtained a guarantee of the outgoing tenant's performance of its obligations under the AGA (known as a "GAGA"). In addition, for pre-1996 leases, the law was more favourable to landlords and former tenants and their guarantors may have continuing liability for the whole of the term.
Section 17 of the Landlord and Tenant Covenants Act 1995 releases a former tenant and their guarantor from liability unless the Landlord has served a s.17 notice which specifies the amounts due within 6 months beginning with the date when the charge becomes due. The prescribed form of notice informs the former tenant or guarantor about the liability and protects a landlord's right to seek payment.
You should serve this notice even if the tenant is on a payment plan. It is not a demand for payment – it is just preserving your right to demand payment in the future.
Does this affect me?
If you have arrears from the June quarter (Midsummer's Day) this year it may affect you.
What do I need to do?
Check your arrears schedule to see if you have arrears from the June quarter date. Then check whether any of those leases have been assigned and whether there is an AGA and GAGA in place.
If we hold your deeds we can cross check your arrears schedule against the deeds. If a notice needs to be served we will ask you for a statement of account to accompany the notice.
NB you do not need to serve a s.17 notice on guarantors of existing tenants.
What is the deadline?
For rent which fell due on 24 June 2020 the s.17 notice must be served by 23 December 2020.
Please don't leave it to the last minute as leases may contain specific service provisions which mean that the notice must be sent earlier than 23 December 2020 to be effective.
Right to an Overriding Lease
Please note that if the previous tenant or its guarantor does pay the arrears, it will be entitled to claim an overriding lease, which is a lease in similar terms to the existing lease but for a few days longer. That lease would sit between you and the occupational tenant, so your recourse in the future may only then be against the previous tenant/guarantor. They would have the right to take direct action against the tenant if there are further defaults, either to enforce payment or terminate the lease and re-let (subject to any consents required from you).
There may be circumstances where you might not want an overriding lease and may therefore wish to refrain from serving section 17 notices. We can discuss this with you.