RESTRICTION ON LIABILITY OF FORMER TENANT FOR RENT OR SERVICE CHARGE (Hansard, 14 July 1995)

§ Mr. Thurnham

Clause 13 applies to both new and existing leases and makes provision to ensure that former tenants who are still under liability in relation to a lease which they have assigned should be given notice within a fixed period of any arrears that become due and which they may find themselves having to pay. The liability may arise because of privity of contract liability or an excluded assignment or an authorised guarantee agreement. This "problem notice" will alert a former tenant to his potential liability and will enable him to make provision against the liability rather than as at present leaving him living in blissful ignorance until he is suddenly presented with a bill which might cover a long period of arrears.

1256 When the Bill left the House it fixed the period at nine months but, as I have said, one of the elements in the agreed package of additional changes involves the reduction of that period to six months. There is an amendment to accord with the commitment to the House to table amendments to give effect to that package. There is a dauntingly large number of amendments to the clause. To some extent, that reflects the clause's importance as a measure to assist former tenants and as the springboard for the variations and overriding lease clauses. It is also the result of a large number of minor technical amendments which are necessary to follow through a single change, which I shall now explain.

The essence of the six-months rule, as it has now become, is that the landlord should serve notice of sums which arise under the lease as fixed or liquidated sums. That is because it is too difficult and onerous for the landlord to attempt to do that for matters such as dilapidations, which by their nature are difficult to quantify as they arise. The wording of the clause as it left the House limited it to rent and service charges, but it has been amended to recognise that there are other such liquidated sums whose amount will be fixed as they fall due—for example, specified payments for each fixed period that the tenant is in breach of a particular covenant. There is no reason why the former tenant should not have notice of such sums as well as notice of rent and service charges.

No fewer than 11 amendments in the group relate to that change. Amendments Nos. 38, 40 to 42, 49, 51, 53, 54 and 56 provide that instead of referring to "rent or service charge" the clause refers to a "fixed charge", which is defined as covering rent, service charges corresponding to the well-settled definition in the Landlord and Tenant Act 1985, and sums payable as liquidated amounts in the event of breach of a covenant. Amendment No. 37 does for this clause what amendment No. 31 does for clause 12, making it clear that tenant-only covenants are covered.

When the Bill left this House, clause 13 did not deal at all with the question of interest on the sum which is due. Amendment No. 45 rectifies that omission so that the former tenant will be given some warning of the fact that interest is accruing on a sum due, so that he can take that into account in making provision to meet his potential liability.

Although that is of course of benefit to the tenant, it is necessary to avoid placing too onerous a burden on the landlord, who is accordingly not expected to calculate the interest accrued and keep updating it for the former tenant's benefit. Rather the amendment requires the landlord simply to warn the former tenant in the notice of the fact that interest is accruing and the terms on which it is accruing. That simple warning will ensure that he is able to recover the interest should he sue the former tenant in due course, while giving the former tenant sufficient information to assess his likely liability and make provision accordingly.

The remaining amendments also insert provision consistent with the policy underlying the six-month rule, but simply not dealt with in the original draft. It was accepted as part of the property industry package that the protection of the six-months rule should be extended not only to former tenants, but to their guarantors, who are just as exposed and likely to suffer from a sudden and unexpected demand payment covering a long period of arrears as former tenants.

1257 Furthermore, if no provision were made for guarantors, it would be open to a landlord to sue a former tenant's guarantor for payments that the landlord could not recover from the tenant, not because the tenant could not meet the payment, but because the landlord simply did not bother to serve notice on the tenant, and found it easier to sue the guarantor because no notice was required. I am sure that the House will agree that such a possibility would be most unfair and would tend to defeat the whole object of the six-month rule.

Amendment No. 46 accordingly plugs that gap with a new subsection (2A), making the same provision for guarantors as subsection (2) makes for former tenants. Amendments Nos. 48 and 50 consequentially ensure that references in subsection (3) to subsection (2) are amended so that they refer also to the new subsection (2A).

Amendment No. 47 follows through by expressly applying to guarantors as well to former tenants. That amendment inserts a new subsection to make good another omission, this time to assist landlords in the task of serving notice. It is possible that the landlord may in good faith have served on a former tenant a "problem notice" specifying a particular sum, but that, for reasons outside the landlord's control and not due to any carelessness on his part, the sum due is determined to be greater, but is not so determined until after the six months is up.

For example, there might be a rent review outstanding at the time that the landlord serves the notice, which subsequently determines the rent to be higher on a backdated basis, but that does not occur until more than six months after the rent payment due. It would not be fair for a landlord in such a position who had not made a mistake through carelessness in specifying the sum, to be unable to recover the difference between the sum in the notice and the higher sum that the determination entitled him to.

The amendment makes provision enabling the landlord to preserve his right to recover the difference in such cases by serving a supplementary notice within three months of the final determination. To ensure that the tenant is not taken by surprise, the landlord is required to give warning in the original notice that the liability is subject to the possibility of upward determination in that way, and only if he does so will he be able to recover the difference in the circumstances outlined.

I have mentioned the fact that clause 13 acts as a springboard for the variations and overriding lease clauses, and those clauses make reference to authorised guarantee agreements and new tenancies, which in the original draft were defined only for the purposes of clause 13. Amendment No. 52 accordingly removes the definition of "authorised guarantee agreement" in subsection (4) of clause 13, and amendment No. 75 reproduces it as a general definition for the whole Bill in clause 19, which becomes clause 28 as amended. Amendment No. 55 and amendment No. 79 do the same thing for the definition of "new tenancy".

Finally, there are a number of amendments to clause 18 of the Bill as it left the House—clause 27 as now amended—which are consequential on the changes to clause 13. Clause 18 makes provision for notices that are required to be served under the Act, and in particular specifies certain matters that the notice must contain and 1258 provides that notices not substantially in the prescribed form will not be effective. Amendment No. 69 extends to "problem notices" under clause 13 the requirement already applicable to notices under clauses 6 and 9 for the notice to include an explanation of its significance to the former tenant or guarantor. It is clearly important for the former tenant or guarantor to have it spelled out to him that the notice preserves the landlord's right to sue for the sum stated and interest if appropriate, and that is arguably more important than for the recipient of a notice under clauses 6 or 9.

Amendments Nos. 70 and 71 extend to problem notices under clause 13 the sanction of ineffectiveness that is applicable to notices under clauses 6 and 9 which are not substantially in the prescribed form. Amendment No. 72, which is entirely technical, removes a limitation in a reference to clause 13 which has become inappropriate in the light of the amendments to that clause.

Mr. John M. Taylor

Once again, my hon. Friend the Member for Bolton, North-East has fully and clearly explained a complex network of detailed and technical amendments and I am most grateful to him. I commend the amendments to the House and wish only to add a little extra detail concerning the service of notices.

As I mentioned earlier, the form of notices will be prescribed by statutory instrument and the intention will be to make the notices as clear and as simple as possible, both so that the recipient can understand at a glance what the notice is about, what it means for him and what he can do, and so that complying with the requirement to serve a notice substantially in the prescribed form is as simple for the serving party as it can reasonably be, without sacrificing the objective of getting the information to the recipient.

It has been asked in some quarters whether the six-months rule will require the landlord to serve a notice within six months of each time the particular payment falls due, or whether a single notice the first time rent is not paid on time would preserve the landlord's right to sue for that and all subsequent unpaid instalments.

I wish to take this opportunity to state that, in my view, the wording of the clause clearly has the former effect, and that that is the intended effect. The most a landlord will actually be required to do is to serve a notice within six months of each instalment of a fixed charge becoming due. For example, to preserve the right to sue for a full year's rent, two notices a year will be required. That can hardly be said to be excessively onerous. There may, of course, be other fixed charges that fall due on different dates, so that a landlord who took a scattergun approach might end up serving numerous notices. However, even in those circumstances the burden is unlikely to be significant.

The advantages for the tenant are clear. He will have, in effect, a continuing report on the state of play and if he receives a series of notices indicating that a series of instalments of rent are unpaid, he will be in a position to realise that action may be called for on his part.

Another question that has been raised concerns service and the question of former tenants whose present address is unknown to the landlord. It has been suggested that in such a case the landlord may be unable to find out where to serve the notice until it is too late and may thus lose 1259 the right to enforce against the former tenant. In fact, clause 18 borrows the well-settled provisions of section 23 of the Landlord and Tenant Act 1927, which were borrowed by the Landlord and Tenant Act 1954 in the same way and have been applied for the purposes of that Act for more than 40 years. It permits service by registered post to the last known abode of the intended recipient of the notice. It will be a matter for a prudent tenant or guarantor who moves to ensure that the landlord has an up-to-date address for the service of notices, otherwise the tenant will risk the possibility of the landlord fulfilling his duty and preserving his right to sue by serving on the last known address, but the tenant not actually seeing the notice.

As a final practical point, it should be borne in mind that, if a tenant has disappeared so completely that there is no known address for service, it will be in any event extremely difficult, if not impossible, to locate him for the purposes of enforcing a liability. I beg to support the amendments.