Commercial leases: recovering the costs of serving a notice

In the event that a tenant fails to pay rent within the specific period set out in the lease then a landlord can peaceably re-enter his commercial premises. However, where the tenant has breached any other term of the lease, the landlord will have to serve a notice under section 146 of the Landlord and Tenant Act 1925.  

A recent court decision highlighted the need for practitioners to take care when drafting the standard covenant whereby the tenant must pay the expenses of the landlord in the event that the landlord serves a section 146 notice.

In the case of 19-21 Rendezvous Street – Shepway: Midland Birmingham (Service Charges) (January 2012), a landlord issued proceedings in the county court for service charges that remained unpaid as well as administration costs.  This case was transferred to the Leasehold Valuation Tribunal (“LVT”) where the tenant accepted that they did owe the outstanding service charges but claimed that they did not have to pay the landlord’s administration costs leading up to the service of the section 146 notice. 

The landlord argued that the tenant must pay the administration costs based on the covenant given by the tenant in the lease which read as follows:

“To pay all expenses (including Landlord’s solicitors’ costs and surveyors fees ) incurred by the Landlord incidental to the preparation and service of notice under Section 146 of the Law of Property Act 1925 notwithstanding that forfeiture is avoided otherwise than by relief granted by the court.”

The LVT held that the tenant was not obligated to pay the administration costs such as managing agent’s charges for preparing instructions to a debt collector or the charges of the debt collector writing to the respondent to try and recover the service charges.  Their reasoning was based on distinguishing this case from another similar case known as Freeholders of 69 Marina, St Leonards-on-Sea v Oram [2011].  In that case the wording of the same covenant read as follows:

“To pay all expenses including solicitors’ costs and surveyors’ fees incurred by the Landlord incidental to the preparation and service of a notice under Section 146 of the Law of Property Act 1925 or incurred in or in contemplation of proceedings under section 146 or 147 of the Act notwithstanding in any such case forfeiture is avoided otherwise than by relief granted by the Court.”

It was held that this wording does cover administration fees of managing agents.   The covenant in the 19-21 Rendezvous Street case did not contain such wording so therefore the landlord could not claim such costs back and the administration costs were held to be too remote to fall within the definition of “incidental.”

It is therefore crucial that a solicitor drafting a commercial lease for a landlord includes wording as used in the 69 Marina case.  This will make sure that in addition to solicitor’s and surveyor’s fees, any reasonable expenses incurred in or in contemplation of proceedings under section 146 can be claimed back from the tenant.

Holmes & Hills Solicitors has a team of specialist Commercial Property lawyers based in Essex and Suffolk. The specialist Commercial Property Team is recognised as being one of the leading teams of commercial property lawyers in the region by The Legal 500 - an independent directory of the country's top law firms.