Commercial landlords have been warned to ensure paperwork errors do not end up costing them hundreds of thousands of pounds.
Shoosmiths' Guy Willetts, a specialist in property litigation who heads up the national law firm's commercial property team, and who is based at the Birmingham office, was
commenting following a High Court ruling which saw brewer Scottish & Newcastle recover £600,000 in rent arrears from an assignee.
S&N held two long leases of hotels in Leicester which it transferred to Zeljko Raguz in 1982. Over the next 17 years the leases changed hands several times until the then tenant went into administrative receivership and stopped paying rent.
As Scottish & Newcastle was the original tenant of a lease signed before a change in the law in 1996, it was liable for the arrears - around £600,000 - which it paid to the current landlord.
The brewery then took its Mr Raguz to court to recover the cash.
The High Court found in Scottish & Newcastle's favour, ruling that he was liable because of his indemnity covenant with S&N.
But it warned that it was important when rents are under review for landlords to serve the appropriate warning notice under the Landlord and Tenant (Covenants) Act 1995 on former tenants, informing them of a potential liability for the uplift in rent.
Crucially, the High Court said that otherwise a landlord could not recover the reviewed rent from any former tenant or guarantor - sums potentially running into hundreds of thousands of pounds, as in this case.
That failed to happen in the Raguz case.
Before this decision, serving a notice would not have been contemplated, particularly in circumstances where the current tenant continued to pay the unreviewed rent.
Commenting on the judgment, Mr Willetts, a partner with Shoosmiths, said: "The message to landlords is - do not overlook the need to serve the appropriate notice on former tenants.
"This case shows that you need to be careful when you serve these notices because the consequences of getting it wrong could be significant."
