Commercial landlords benefit from Raguz ruling

The House of Lords has overturned a controversial decision which extended commercial property landlords’ duties to issue warning notices to ex-tenants, should they wish to exercise their right to claim arrears.

Scottish & Newcastle Plc v Raguz, upheld an appeal against an earlier decision that many in the property industry had criticised as unworkable.

In March 2007, the Court of Appeal interpreted the meaning of the word “due” in Landlord and Tenant (Covenants) Act 1995, s 17 in a way that the property industry regarded as too restrictive. It meant landlords would forfeit their right to recover arrears of current tenants from former tenants, unless they had issued a warning notice to ex-tenants whenever a rent review was delayed—even if current payments were up to date. The warning notice would have to specify the claim as “nothing yet but wait and see”, the court said.

According to David Sanders, a real estate partner at City law firm Macfarlanes LLP, this would have resulted in landlords having to send out default notices for unpaid rent, even if there had been no default.

However, last week’s House of Lords ruling means landlords now no longer need to serve a default notice unless the new rent has been fixed and the tenant has not yet paid it. Sanders says: “Lord Scott today described the earlier Court of Appeal ruling as ‘ridiculous’, and Lord Hoff mann said it had ‘remarkably silly consequences’. The property industry has been saying exactly the same thing for the last eighteen months.

If the earlier decision had been upheld, this would have placed an absurd burden on landlords, while at the same time causing unnecessary alarm to ex-tenants...Common sense has been restored.”