Key Takeaways
- An overriding lease is a new lease a former tenant or guarantor can demand after being made to pay a defaulting current tenant’s arrears.
- The right comes from section 19 of the Landlord and Tenant (Covenants) Act 1995.
- It slots in above the defaulting tenant, making the person who paid the immediate landlord, with the power to forfeit, re-let or recover losses.
- The request must be made when paying or within twelve months, so timing is critical.
Imagine you assigned your business lease years ago, moved on, and then out of the blue receive a demand for thousands of pounds in rent arrears run up by the company that took over from you. It feels deeply unfair to pay for premises you no longer occupy and have no control over. The law’s answer to that problem is the overriding lease.
An overriding lease is a right given to a former tenant, or the guarantor of a former tenant, who has been forced to pay a current tenant’s debts. In return for paying, they can require the landlord to grant them a new lease that puts them back in control of the property.
This guide explains what an overriding lease is, where the right comes from, how it works and the strict deadline for claiming it, so that if you are ever pursued for someone else’s arrears you know what you can demand in return and avoid simply paying out for nothing.
If you have been asked to cover a former tenant’s debts, our commercial property solicitors offer a free 30-minute consultation.
Why former tenants can still be liable
To understand the overriding lease, you first need to see why a former tenant can be chased at all. It comes down to whether the lease is old or new. With an old lease, granted before 1 January 1996, the original tenant stays liable for the whole term under the principle of privity of contract, even after assigning it to someone else. With a new lease, granted on or after that date, the Landlord and Tenant (Covenants) Act 1995 releases a tenant on assignment, but the landlord can require them to guarantee their immediate successor through an authorised guarantee agreement, or AGA.
Either way, if the current tenant stops paying, the former tenant or their guarantor can find themselves on the hook for arrears built up by someone else. In practice this most often happens when the current tenant becomes insolvent, leaving the landlord to look back down the chain for someone who can pay.
The section 17 notice
There is an important precondition. Before a landlord can recover a fixed charge, meaning rent, service charge or a liquidated sum, from a former tenant or guarantor, it must serve a notice under section 17 of the 1995 Act in the prescribed form within six months of that charge falling due. Miss that deadline and the former tenant or guarantor is not liable at all, even under an AGA. The right to an overriding lease arises once that person makes full payment of the sum demanded.
What an overriding lease actually is
Once the former tenant or guarantor pays in full, section 19 of the 1995 Act entitles them to require the landlord to grant an overriding lease. This is a new lease of the property that is inserted between the landlord and the defaulting current tenant. Its effect is to rearrange who sits where:
- The person who paid becomes the direct tenant of the landlord.
- The defaulting current tenant becomes their sub-tenant, holding under the overriding lease.
- The overriding lease runs for the remaining term of the current lease plus three days, and is granted on the same terms as that lease.
In other words, you are slotted into the ownership chain directly above the tenant who has stopped paying. The lease is called overriding because it sits on top of the defaulting tenant’s lease, which becomes a sub-lease beneath it. The extra three days exist simply to ensure you hold a genuine reversion, with the defaulter as your sub-tenant rather than your equal.
Why you would want one
Paying a successor’s arrears with nothing in return is money down the drain. An overriding lease changes that by making you the immediate landlord of the defaulting tenant, so you can take action to limit and recover your losses. In practice that means you can:
- Pursue the defaulting tenant directly for the rent they now owe you as their landlord.
- Negotiate a surrender of their sub-lease, or forfeit it if they keep defaulting.
- Take back the premises and re-let or occupy them, turning a dead loss into a usable asset.
Take a simple example. You assigned your lease with five years left and gave an AGA. The assignee then fails, owing six months’ rent, and the landlord serves a section 17 notice on you, which you pay. Rather than walk away with nothing, you claim an overriding lease. You are now the landlord of the failed assignee for the rest of the term, free to forfeit their sub-lease, take the unit back and re-let it to recoup what you have paid out.
How and when to claim it
The right is valuable but it is not automatic, and the timing is unforgiving. The request must be made to the landlord in writing, identifying the payment you are relying on, and it must be made either at the time you make that payment or within twelve months of it. Miss that window and the right is lost.
Where the landlord has served section 17 notices on several people, the first to pay and claim generally secures the overriding lease, and the rules give a former tenant priority over a guarantor. The person claiming the lease usually has to meet the landlord’s reasonable costs of granting it.
Things to weigh up
An overriding lease is not automatically the right move. Taking one makes you the tenant under it, so you take on obligations to the head landlord and inherit the defaulting tenant as your sub-tenant. Whether it is worth it depends on the value of the premises, how much of the term is left and your prospects of re-letting or using the space. For landlords, the lesson runs the other way: think carefully before serving a section 17 notice, because anyone who pays in response can demand to become your tenant.
Speak to a commercial property solicitor about an overriding lease
Being pursued for a former tenant’s arrears is stressful and expensive, but it can also give you a valuable right if you act quickly. The twelve-month deadline for claiming an overriding lease is strict, and the decision whether to take one needs a clear view of the costs and obligations involved.
At Osbourne Pinner, our commercial property solicitors advise former tenants, guarantors and landlords on section 17 notices, authorised guarantee agreements and overriding leases, helping you protect your position whether you are recovering arrears or facing a demand to pay them.
Please note that this article is for informational purposes only and does not constitute legal advice. We always recommend speaking to a qualified solicitor for advice tailored to your specific circumstances.
We offer a free 30-minute consultation to discuss your situation. You can speak with us via video call or visit our offices in Harrow, Canary Wharf, Piccadilly Circus or Manchester. To arrange your consultation, call 0203 983 5080, email [email protected] or complete the form below.
