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RECOVERING ARREARS: PURSUING FORMER TENANTS AND/OR GUARANTORS
Old tenancies
These are:
| - tenancies granted before 1 January 1996; |
| - tenancies granted pursuant to an agreement entered
into before 1 January 1996; or |
| - tenancies granted pursuant to a Court Order made before
1 January 1996. |
With an "old" tenancy, the landlord can pursue the
original tenant and, depending on the wording of the lease,
the original guarantor for a subsequent tenant's arrears.
A landlord under an "old" tenancy can also pursue
subsequent tenants and guarantors who covenanted directly
with it to perform the lease covenants for the remainder of
the term. This covenant is usually contained in the Licence
to Assign.
New tenancies
These are tenancies granted on or after 1 January 1996, other
than those tenancies entered pursuant to an agreement or Court
Order made before that date. (See above on "old"
tenancies).
With a "new" tenancy, the landlord can only pursue
a former tenant who has signed an Authorised Guarantee Agreement
("AGA"). An AGA cannot require a former tenant to
guarantee the performance of the lease covenants by any person
other than the assignee, i.e. once the immediate assignee
of the former tenant is released from its lease covenants,
the relevant former tenant is similarly released from its
obligations under the AGA.
Notice
With both "old" and "new" tenancies, landlords
are required to give notice to a former tenant/guarantor of
its intention to recover its tenant's arrears of fixed charges
from that former tenant or guarantor. (This is required by
section 17 of the Landlord and Tenant (Covenants) Act 1995).
Notice must be given before action is taken by the landlord
to recover the arrears from the former tenant or guarantor.
"Fixed charges" = rent (including any sum reserved
as rent by the lease), service charges (as defined by
section 18 of the Landlord and Tenant Act 1985) and any
liquidated sum payable under the lease as a result of
a tenant breach of covenant.
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Although the need to serve a section 17 notice applies to
former tenants and guarantors under both "old" and
"new" tenancies, remember that a landlord can only
pursue a party connected with a new tenancy if it is liable
under an AGA. (See above on "new" tenancies).
A section 17 notice must be served within 6 months of (and
including) the date when the fixed charge became due, e.g.
notice in respect of rent due on 25 March 2006 must be served
by 25 September 2006. If the landlord fails to serve the
notice in time, he will lose the right to pursue the former
tenant/guarantor for those arrears.
Overriding lease
If the former tenant/guarantor pays the sums demanded by the
section 17 notice, it can require the landlord to grant it
an overriding lease of the premises, i.e. the former tenant/guarantor
will become the landlord's direct tenant. The landlord therefore
needs to consider (before any notice is served) whether it
would be willing to have the former tenant/guarantor as its
direct tenant.
Advantages:
+ Fairly simple procedure.
+ May give immediate cashflow.
+ May get new direct tenant with stronger covenant.
Disadvantages:
- May get new direct tenant with weak covenant.
- Need to serve fresh notices if the tenant's arrears continue
to accrue.
For further information or advice please contact propertylitigation@charlesrussell.co.uk
These notes represent only an outline summary
of relevant principles and detailed advice should always be
sought in particular cases.
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