West Law Report

Retrospective rent rises were not ‘now due’

Posted in House of Lords (case), Times Law Report by mrkooenglish on November 16, 2008

From The Times
November 3, 2008
Retrospective rent rises were not ‘now due’

House of Lords
Published November 3, 2008
Scottish and Newcastle plc v Raguz
Before Lord Hoffmann, Lord Hope of Craighead, Lord Scott of Foscote, Lord Walker of Gestingthorpe and Lord Brown of Eaton-under-Heywood
Speeches October 29, 2008

Rent increases that would become retrospectively payable under uncompleted rent reviews had not been “now due” within the meaning of section 17 of the Landlord and Tenant (Covenants) Act 1995 and the landlords had not been required to serve protective notices on assignors under that section in respect of them.

The House of Lords (Lord Hope and Lord Walker dissenting in part) dismissed an appeal by the defendant, Zeljko Stephen Raguz, and allowed a cross-appeal by the claimants, Scottish and Newcastle plc, from the dismissal by the Court of Appeal (Lord Justice Mummery, Lord Justice Lloyd and Lord Justice Rix) ([2007] Bus LR 841) of Mr Raguz’s appeal from Mr Justice Hart ([2006] EWHC 821 (Ch)).

Section 17 of the 1995 Act provides: “(2) The former tenant shall not be liable … to pay any amount in respect of any fixed charge payable under [a covenant of the tenancy] unless, within the period of six months beginning with the date when the charge becomes due, the landlord serves on the former tenant a notice informing him – (a) that the charge is now due; and (b) that in respect of the charge the landlord intends to recover from the former tenant such amount as is specified in the notice… “(4) Where the landlord has duly served a notice under subsection (2) … the amount … which the former tenant … is liable to pay … shall not exceed the amount specified in the notice unless -(a) his liability … is subsequently determined to be for a greater amount, (b) the notice informed him of the possibility that the liability would be so determined…” Mr Stephen Jourdan and Miss Marion Lonsdale for Mr Raguz; Mr Timothy Fancourt, QC and Mr Christopher Stoner for Scottish and Newcastle.

LORD SCOTT said that Scottish and Newcastle had become the original tenants of premises in Leicester under two underleases of 1967 and 1969, which had contained provisions for rent review every 14 years.

They had assigned them to Mr Raguz in 1982. By 1992, after further assignments, they had become vested in Hotel St James Ltd.

On the assignments, including that to Mr Raguz, implied covenants for indemnity, under section 24 of the Land Registration Act 1925, had been given by the assignees to the assignors.

By 1999 the reversions to the underleases had become vested in National Car Parks Ltd. Scottish and Newcastle had retained a potential liability to NCP on the tenant’s covenants in the underleases.

April 18, 1995 had been a rent review date for the 1967 lease, but it had not been until September 23, 2000, that the revised rent had been fixed. The revised rent under the 1969 underlease, payable with effect from the December 1996 quarter day, had been agreed in February 2001.

Hotel St James had failed to pay the rents due on the June 1999 quarter day, and in October their mortgagees had appointed administrative receivers.

NCP had protected their rights against Scottish and Newcastle by serving, from November 1999, a succession of section 17(2) notices, some deleting and some leaving standing paragraph 4 of Form 1 in the Schedule to the Landlord and Tenant (Covenants) Act 1995 (Notices) Regulations (SI 1995 No 2964), which provided: “There is a possibility that your liability in respect of the fixed charge(s) detailed … will subsequently be determined to be for a greater amount.”

A footnote said “Delete this paragraph if not applicable”.

Scottish and Newcastle had understandably been anxious that the underleases should as soon as possible be assigned by Hotel St James to an assignee likely to be able to pay the rents. To that end they had paid NCP all the arrears of rent as revised. Their claim against Mr Raguz under section 24 of the 1925 Act was to be reimbursed those sums.

Mr Raguz submitted that, for the purposes of section 17(2)(a), the rent due during the interval between the review date and the date on which the amount of the revised rent was finally determined included the as yet unquantifiable amount of the difference between the prereview date rent and the eventual revised rent. Notices had to be served leaving paragraph 4 standing so as to place the recipient on notice that the amount of rent for which he was liable might increase.

The judge had held that two of NCP’s notices had not complied with section 17. He had held that “due” meant due, even if not yet quantified and therefore not yet payable.

NCP should have served a succession of Form 1 notices within six months of each successive quarter day specifying the amount due as “nil” or “nothing for the moment but wait and see”. He had, however, also held that, although Scottish and Newcastle would have had a good defence if sued by NCP for the additional rent, they were entitled under section 24 of the 1925 Act to an indemnity from Mr Raguz.

The point was a short one of construction. In his Lordship’s view, section 17 was contemplating a sum that had become payable but was unpaid, for the recovery of which an action could be brought against the current tenant.

Where there was an uncompleted rent review, the rent that became due and payable on each payment day was the prereview rent. That was the “fixed charge” “now due” for section 17 purposes.

The additional rent over the period from the rent review date until 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.

Form 1 contained provisions supporting that construction but also provisions that seemed inconsistent with it. In his Lordship’s view, the draftsman responsible for paragraph 4 had not thought through the implications of his assumption that the additional rent would be part of the “fixed charge” due on each payment date.

NCP had properly complied with the requirements of section 17, and in paying NCP the unpaid rent Scottish and Newcastle had been discharging an obligation that they had been legally bound to discharge. It was, accordingly, unnecessary to express a final opinion on the section 24 point.

Lord Hoffmann and Lord Brown delivered opinions agreeing with Lord Scott.

LORD WALKER, concurring in the result, said that in his opinion the omission of paragraph 4 from a Form 1 notice made irrecoverable any instalments of the balance of the revised rent that had already notionally accrued.

LORD HOPE, concurring in the result, agreed with Lord Walker on the effect of the omission of paragraph 4 from the relevant Form 1 notices. Solicitors: Sharpe Pritchard for LHP Law LLP, Redditch; Eversheds LLP, Newcastle upon Tyne.

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