In commercial leases, Section 17 provides that where the former tenant has assigned the tenancy, and has entered into an authorised guarantee agreement (AGA) for the benefit of the new tenant, the former tenant remains bound to pay any fixed charges where the new tenant cannot.
For the purposes of Section 17, these fixed charges include rent, service charges and any payment associated with a tenant’s breach of covenant.
This obligation set out by Section 17 also applies to tenancies created pre-1 January 1996, albeit in a slightly different way.
If it is clear to a landlord that their current tenant will not be able to pay its rent or other fixed charges, they can serve a Section 17 notice on the former tenant or guarantor within 6 months of the fixed charge falling due.
Upon receipt of a Section 17 notice, the former tenant or guarantor is bound by the covenant to pay any outstanding rent and fixed charges in place of the current tenant. However, if the deadline is missed and the notice is not served within the 6-month window, the landlord loses the right to pursue the former tenant or guarantor for that particular unpaid fixed charge.
“Even though recovery from a guarantor under Section 17 can be a useful mechanism for landlords there are complexities that need to be considered before seeking to rely on it.
“The time limits in the legislation will affect a landlord’s ability to recover historic, unpaid fixed charges older than 6 months. Landlords should also be wary of former tenants or guarantors seeking to reinstate their interest in the property by payment of a current tenant’s arrears.
“Tenants need to know there is nothing to stop landlords from pursuing them directly under the terms of their lease. It’s important to not be complacent and assume that their unpaid debts will become someone else’s responsibility”.
The intricacies of this Section should not be overlooked, and advice should be sought in good time if landlords or tenants seek to rely on it.
Katie is a solicitor in the Property Dispute Resolution team. She specialises in commercial and residential property issues, such as advising clients on a range of contentious property matters, recovery of possession, forfeiture and beaches of covenant.
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