This article identifies the most common types of disputes between commercial landlords and business tenants.
Landlords and business tenants should have a strong understanding of their contractual rights and statutory protections when entering into any commercial lease. Landlords and tenants put a significant amount of effort into negotiating the terms of the lease but too often fail to consider what happens if a dispute arises or a contracting party fails to perform their obligations.
Like other areas of litigation, commercial property disputes can be resolved in a number of ways and most issues can be settled before stepping foot in a court. Given the expense of property litigation, both landlords and tenants should give careful consideration to their position and assess practical and commercial solutions to the dispute. Taking advice from legal professionals is also an important step; leases are often complex documents that are difficult to understand and the statutory rights and protections around tenancies often change (particularly as a result of the COVID-19 pandemic). As such, business tenants and landlords should ensure they are properly advised when any commercial property dispute arise.
Disputes between commercial landlords and business tenants generally fall into four categories:
- Rent and Service Charge Arrears
- breach of lease obligations
- dilapidation repair claims
- and the procedure for ending or renewing a business tenancy.
Rent and service charge arrears
Business tenants will sometimes fall on hard times and fail to pay the rent or service charges due under a lease. This is a problem which is expected to worsen in the coming months following the economic disruption caused by the COVID-19 pandemic. When landlords encounter rent or service charge arrears, they have a number of options but should take legal advice as early as possible to ensure any enforcement action doesn’t prejudice their other contractual and statutory rights. As a general statement, landlords can either determine the lease, draw down a deposit, use commercial rent arrears recovery enforcement, pursue a guarantor, issue court proceedings to recover the debt, or issue a statutory demand for the debt and commence insolvency proceedings against the business. Landlords can also reach a negotiated agreement with the tenant to settle the debt claim.
Business tenants who are unable to pay their rent or service charges have much more limited options and should engage landlords early to try and reach an agreement.
Breach of lease obligations
Commercial leases will contain provisions relating to a tenant’s use of a property. These will include provisions around subletting, underletting, repairs, signage restrictions and alterations. The lease will often contain covenants which require the tenant to keep the property in a certain way and notify the landlord of any relevant changes to the use, occupation or structure of the premises. If the tenant breaches a covenant, the landlord must first establish if the breach is remediable or irremediable. If the breach is remedial, the landlord must give the tenant a chance to put things right. If the breach is not corrected—or the breach is irremediable—the landlord can serve a forfeiture notice under section 146 of the Law of Property Act 1925 (LPA 1925).
Landlords can also be in breach of lease covenants, most often relating to the breach of repair and maintenance obligations. In these sorts of cases, the tenant will have several options including making the repairs themselves, requesting the landlord make the repairs in line with their lease obligations or commencing proceedings to enforce the obligations.
Dilapidation repair claims
Dilapidations are items of disrepair which are covered by the repairing covenants. These are generally identified at the end of a commercial lease. These items of disrepair can relate to general repairs of the premises, the decoration of the premises, compliance with statutory requirements and reinstatement obligations. If the lease term hasn’t expired, a landlord can make the repairs themselves under what is known as a Jervis v Harris clause in the lease. The landlord can also seek specific performance of the obligation though the court, though that can be an expensive process. If the lease has ended, a landlord can, in some circumstances, pursue a tenant for damages.
The procedure for ending or renewing a business tenancy
Disputes also arise around the ending or the renewal of lease. Prior to the Landlord and Tenant Act 1954, the commercial lettings market was weighted in favour of commercial landlords. With the passage of the Landlord and Tenant Act 1954 business tenants were granted the protections set out in section 24(1) of the Act. The protections for business tenancies—which include periodic and fixed term oral and written tenancies—ensure that a tenancy continues after the contractual term ends unless terminated using a specific process and that a business tenant has a right to apply for a new tenancy on the termination of the current tenancy. This means that if a business hasn’t received or given notice at the end of the term as defined in the lease, the lease continues under the same terms. If the tenant or landlord wish to renew the lease, they can serve the relevant statutory notice and begin negotiating new terms. If the terms are not agreed, either party can apply to the court for either the granting of a new lease or an order that no new lease should be granted. Landlords looking to end a lease must also adhere to the procedures laid out in the Landlord and Tenant Act 1954. Care must be taken to adhere to the statutory procedure and timelines as errors can affect the validity of a notice and application.
If you are a commercial landlord or tenant and need further advice on this issue or a specific dispute, please contact a member of our Dispute Resolution team. Girlings has offices in Ashford, Canterbury and Herne Bay.