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When does the rent under a rent review become ‘due’? The answer is that it
becomes ‘due’ as soon as it becomes a liability on T, and that means it is
due on the normal rent days (even if the amount of the increased rent has
not been decided, because the rent review has not been completed).
As we noted previously, the logic of this means that
when there is an outstanding rent review, if L wants to recover any uplift in
rent from a previous T (or guarantor), then it must serve a s17 default notice
on them within six months of every quarter day from the review date until the
amount of any uplift is determined. Many will think that this is a nonsense;
after all, the logical date when the increased rent becomes ‘due’ is surely
when the rent review process is determined (and therefore L would have to
serve his s17 notice within six months of that date). But, the High Court has
decided otherwise: the rent becomes ‘due’ on the conventional rent days,
and thus L needs to serve s17 notices in respect of the unknown rent
increases from each of those rent dates!
Note that this applies even if the current T is a good rent payer and is not in
arrears. In that situation, the default notice to the previous Ts/guarantors is
simply a protective notice for an unascertained amount of rent increase. In
practical terms the decision imposes an unwelcome property management task
on Ls. Whenever a rent review is instigated, L will now have to identify all
previous Ts who may be liable to pay any back-dated increase in rent. If L wants
to protect those claims for back-dated increases, then shortly after the rent
review date (and within six months of each subsequent rent payment day) L
should serve a s17 notice on the former Ts or guarantors stating that an
increase in rent has become due and that L may seek to claim it if the current
T defaults. The notice should state the highest amount claimed rather than the
amount which L expects to achieve upon review. A further s17 notice should
also be served once the rent has actually been determined.
It is also worth noting that this decision will apply to any sum demanded that
may be subsequently revised to a higher amount. This could, for instance,
include the situation where L wants to preserve the right to claim a service
charge balancing payment from a former T. In that situation L should properly
serve a s17 notice. Having said that, many lawyers think this is an absurdity
and the hope is that the CA will intervene.
Finally, if you do not understand our references to s17 then this is s17
Landlord and Tenant (Covenants) Act 1995. This says that if L wants to
recover a ‘fixed charge’ (which includes rent or a service charge) from a
former T, then L must give notice to the former T within six months – or the
money is lost. The rule is primarily intended to cover the situation where T is
falling into arrears, and it then prevents L from allowing arrears to
accumulate to a high level without the former T’s knowledge. But, it now
seems to work as a procedural pitfall on a conventional rent review. For a
commentary on Scottish & Newcastle v Raguz [2006] EWHC 821 (Ch) see
[2006] 172 Property Law Journal 3; DLA (Real News – Summer 2006).
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