The High Court has refused to set aside a consent order agreed between a landlord (L) and a former tenant (T) in respect of rent arrears where L had failed to serve a notice pursuant to section 17 of the Landlord and Tenant (Covenants) Act 1995 (LTCA 1995).
The facts of the case of Lee v Sommer were that the outgoing tenant (T) assigned two leases, which were "new leases" for the purposes of the LTCA 1995, to the assignee (A). T, by way of an authorised guarantee agreement, guaranteed A's obligations to pay the rent under the leases to the landlord (L). A failed to pay all the rent due to L and L commenced a claim against T under T's guarantee of A's obligations.
However, L did not serve notice under section 17 of the LTCA 1995 and did not refer to section 17 in the particulars of claim. The LTCA 1995 provides that a former tenant (or former guarantor) will not be liable to pay any sums (that fall within the definition of "fixed charge") due from the current tenant unless the landlord has served that former tenant (or former guarantor) with a notice pursuant to section 17 within six months beginning with the date that the arrears first became due.
If the landlord has not served the section 17 notice by the end of the six month period, the former tenant (or former guarantor) is not liable and the landlord has no prospect of success in any action it brings against the former tenant to recover the fixed charge.
T instructed lawyers who settled a defence on T's behalf. Unfortunately, T's lawyers did not plead the failure to serve a notice pursuant to section 17 of the LTCA 1995. If they had done so, it was common ground that such a plea would have been a complete answer to the claims under the guarantee for rent.
A consent order was then agreed between L and T. T then instructed a new firm of lawyers who spotted that L had failed to serve a section 17 notice. T therefore commenced a new set of proceedings asking for the consent order to be declared void and of no effect and for it to be set aside. The Recorder refused to do so. The High Court agreed that the Recorder was correct not to set aside the consent order.
The court could find nothing in the LTCA 1995 which would deprive:
The parties of the power to reach a genuine and effective compromise of litigation relating to liability under the guarantee.
The court had the power to grant an order reflecting that compromise agreement.
The court stated that there was a clear line to be drawn between a statutory provision, which went to the court's jurisdiction and a statutory provision which merely defined the ingredients of a cause of action or limited a party's liability. Section 17 was expressed purely in terms of the former tenant's liability and therefore did not have an impact on the court’s jurisdiction to approve the consent order.
The court further found that a settlement agreement, enshrined in the consent order reflecting the genuine compromise of litigation between the parties concerning the recovery of sums under the guarantee, could not be said to "relate to" the tenancies, and was therefore not caught by section 25, the “anti avoidance provision”, of the LTCA 1995.
This case is a reminder for those acting for landlords in similar cases to serve a section 17 notice, and it is also a reminder for those advising former tenants and guarantors to check whether it has been served, since if it has not, then they will escape liability.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.