Scottish & Newcastle Plc v Raguz

A statutory indemnity arising on the assignment of a registered lease is construed according to its terms. It covers expenses and claims arising from the non-payment of rent, even where the original tenant pays sums to secure an assignment or to prevent continuing liabilities. The indemnity is not an insurance policy against a fortuitous default, but recovery may be limited where the claimant’s own conduct caused or materially prolonged the loss and ordinary contractual principles would exclude it. Under section 17 of the Landlord and Tenant (Covenants) Act 1995, a fixed charge becomes due for notice purposes when liability arises, not only when the amount becomes finally demandable. A later notice cannot recover rent retrospectively where the statutory notice period has expired.

The claimant had assigned two long leasehold interests to the defendant, whose assignments contained an indemnity implied by section 24 of the Land Registration Act 1925. The current tenant later defaulted, and the claimant paid rent and associated sums to the reversioner while supporting administrative receivers in marketing the hotel and securing an assignment.

The defendant disputed liability. He argued that section 17 of the Landlord and Tenant (Covenants) Act 1995 prevented recovery of retrospectively determined rent, that the claimant’s intervention had increased or prolonged the loss, and that some payments were made on behalf of the current tenant. The court also determined consequential quantum issues.

1. Section 17 notices. Under section 17 of the Landlord and Tenant (Covenants) Act 1995, a fixed charge is due when liability for it arises. It is not necessary that the charge should already be demandable as a liquidated sum. Where rent is subject to an unresolved review, the landlord must preserve the former tenant’s liability by serving a notice within six months of accrual and, where appropriate, a further notice after determination. The later notices seeking reviewed rent under the two leases were therefore ineffective.
2. The inclusion of identifiable out-of-time amounts did not invalidate notices which separately and properly identified timeous amounts.
3. Scope of the statutory indemnity. The section 24 covenant had two limbs: a covenant to pay the rent and a covenant to indemnify against actions, expenses and claims arising from non-payment. The second limb did not operate as insurance against a fortuitous default. Nevertheless, it covered the claimant’s expenditure incurred because the current tenant could not pay, the reversioner required arrears to be cleared before consenting to an assignment, and payment was necessary to prevent continuing liabilities.
4. The guarantee authorities were not a helpful analogy. The issue was not whether the claimant’s conduct discharged the defendant altogether, but whether the loss fell within the true scope of the indemnity. Ordinary contractual principles, including causation, remoteness and mitigation, remained relevant. On the facts, the claimant had not caused or prolonged the default or deprived the defendant of a realistic opportunity to take an assignment.
5. Payments made on completion were payments in respect of the claimant’s liabilities, notwithstanding correspondence referring to payment on behalf of the current tenant. The claimant’s invitation to serve further section 17 notices did not defeat recovery because it did not materially affect the defendant’s liability.
6. The claimant was entitled to judgment, subject to giving credit for £10,072.21 and excluding the apportioned rent assumed by the assignee.

The judgment records that an earlier summary judgment decision was given on 9 December 2002 and upheld on appeal: [2004] L&TR 11. The present judgment determined the remaining issues after trial.