Wragge & Co LLP warns landlords about the pitfalls of rent recovery from former tenants following the Court of Appeal decision in Scottish and Newcastle plc v Zeljko Stephen Raguz [2007]. According to property litigator Paul Barker, landlords must think two steps ahead in the case of outstanding or protracted rent reviews.

On 6 March 2007, the Court of Appeal gave judgment on the meaning and effect of Section 17 of the Landlord and Tenant Act 1995. In upholding the High Court's decision, the Court of Appeal acknowledged it had imposed an uncommercial burden on landlords - an unintended anomaly of the legislation. But it held that, based on the wording of the Section as it stands, it could reach no other conclusion.

Paul Barker said: "Landlords must protect themselves, in ongoing rent reviews, against the possibility of a current tenant being unable to meet his liabilities, by serving protective notices on former tenants and, where applicable, former guarantors."

Notices must be served within six months of each quarterly payment falling due. To preserve the right to claim a subsequently increased rent, landlords must be careful to ensure that the notice is correctly worded. A further notice will then be needed within three months of the rent review being determined.

"Even if there is no default or prospect of default by his current tenant, a landlord needs to serve protective notices within six months of each quarter day during any outstanding rent review. These should specify the amount claimed as "ni" or "nothing at the moment but wait and see". If he doesn't, he will not be able to pursue a former tenant, or former tenant's guarantor, for the backdated increase in rent, if the current tenant subsequently defaults."

"There may be similar implications for landlords who collect interim service charge payments on account and a balancing payment at the end of the service charge year."

Wragge & Co's national Real Estate Disputes Team is one of the UK's leading specialist property litigation practices. It advises major corporates, developers, investor and public sector clients on all landlord and tenant, and real estate issues. Highlights include securing a Court of Appeal victory for The Financial Times Limited in a landmark case.

The 10-lawyer team is a core part of Wragge & Co's 160-lawyer Real Estate Group. This full-service national practice advises developers, major corporate, public sector bodies and investors on matters including asset management, commercial development, regeneration, tax, finance, environment, planning and investment. Clients include Marks & Spencer, Development Securities, Global Switch and ProLogis Developments.

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This press release may contain information of general interest about current legal issues, but does not give legal advice.