Illustration: on 25 December 1995 L granted a lease to T for 15 years. In 2001, T assigns to T2. The lease provides for the annual rent to be paid in advance on the usual quarter days by equal quarterly instalments. The second and final rent review was due on 25 December 2005, although it was only settled in April 2007. That settlement results in a back-dated increase of £10,000 per quarter, over six quarters. Under the lease, if late settlement of a rent review results in a back-dated increase, payment of the increase falls due on the next quarter day – 24 June 2007. Thus, on 24 June 2007 T2 will have to pay the back-dated rent increase of £60,000 as well as the current quarter’s rent at the new level. But, suppose T2 defaults, can L go against T1? This will depend on L having served an s17 notice within six months of any sum falling due. Pre Raguz, we would have expected that the back-dated increase and the June’s quarter rent would fall due on 24 June 2007, and so L would have until 24 December 2007 to serve an s17 notice. But, Raguz says that is wrong. Irrespective of what the lease says, the increase falls due in the same manner as the annual rent generally under the lease (ie by equal quarterly instalments on the usual quarter days). Accordingly, s17 notices should have been served within six months of each of those dates notifying T1 of its potential unquantified liability. If that has not been done it is at least still possible to serve notice in respect of the last two instalments, but it is too late to serve notice in respect of any of the first four. The first year’s rent increase of £40,000 is lost for good.

No matter how absurd it may seem, in the routine situation where a rent review has not been settled by the rent review date, then if there are any former Ts or guarantors, it is necessary to consider serving s17 notices on those people (even if the current T is not in arrears, and even if there is no reason to suspect he may get into arrears). This must be done for each rent date. Form 1 has to be served in all cases throughout the course of the rent review, and Form 2 has to be served within three months of the final amount being determined. Needless to say, many Ls will feel it is not worth going through this rigmarole (but lawyers should protect themselves from potential negligence claims by making sure that Ls are properly advised of the formal requirements). Source: Cobbetts, writing in [2007] The In-House Lawyer May p97. © Practical Lawyer