Section 6 Law of Distress Amendment Act 1908 enables L to serve a notice on a sub-T, when T is in arrears. The effect of serving the notice on the sub-T is to assign T’s right to receive the rents from sub-T over to L. Thus, once a notice is served on the sub-T, the sub-T then becomes the immediate T of L (and sums payable under the notice are deemed to be the rent).

In effect, there is a statutory privity of contract between the superior L and the sub-T, so as to enable L to prosecute a claim directly against the sub-T if it fails to pay rent to L. If the sub-T itself is in arrears, this would then entitle L to an immediate claim for recovery of those arrears of rent (rather than the arrears of rent go to T). On the other hand, if sub-T is up-to-date with its rent, then L will have to wait until the next rent date to receive a payment of rent from the sub-T. Note also that if the underlease rent is higher than the rent reserved by the headlease, then the sub-T will still get good receipt for paying its rent when it pays the full amount to L.

Interestingly, it seems that service of a notice under the 1908 Act does not amount to a ‘legal process’ which would otherwise be prohibited by IA 1986. Accordingly, L will not need the court’s permission, or the consent of the administrator, to serve such a notice.

There are a few pitfalls to watch out for:

there is nothing in the 1908 Act which requires L to set out when sub-T will be released from its obligations to pay rent direct to L(ie L is not required to specify the total amount L is owed by T). There is therefore a danger that sub-T may continue to pay rent to L after the date when T’s arrears have been cleared, which means that, as far as sub-T is concerned, a good receipt can only be given by T(not L);

if sub-T wants to surrender its underlease, then it is important to remember that T will no longer be able to accept a surrender whilst the right to receive the rents from sub-T is vested in L.

Source: DLA Piper.