With the UK economy currently in the deepest recession since records began, disputes between landlords and tenants are beginning to rise as pressure mounts on commercial occupiers to find ways to diversify and slash overheads in order to survive post-Covid.
As Sanjay Chandarana, property disputes lawyer and partner with Ingram Winter Green explains:
‘Government restrictions, the move towards working from home and growth in shopping online have put a lot of commercial tenants under intense strain. As a result, we have seen an increasing trend in landlords being pushed hard to agree to lease concessions and changes to contractual obligations, some of which are quite controversial.
Strained relationships are leading to disputes which need to be addressed swiftly to avoid matters getting out of hand.
Types of dispute relating to a commercial lease
Aside from non-payment of rent, numerous disagreements are beginning to emerge over commercial leases including:
- contested rent reviews;
- challenges to variable lease costs, such as service charges and insurance contributions;
- tenant repairing obligations;
- reasonableness of requests to assign, sublet or effect a change of use;
- proposed terms for surrender;
- liability for dilapidations;
- the terms of a lease re-gear, particularly if tied to a proposed lease extension or an agreement not to exercise a commercial break; and
- delaying tactics when a lease comes to an end, for example where the tenant is undecided whether to renew and so they seek to hold over.
What landlords should consider
It is undeniable that many tenants are suffering hardship for reasons entirely beyond their control. However, it is also the case that some tenants are struggling because of poor business decisions and general mismanagement. Therefore, when considering the tenant’s position, it is important for a landlord to be clear about the reason why a particular request is being made or a certain stance is being adopted, and what the likely consequences will be in the event compromise cannot be achieved.
For example, if a tenant requests a surrender and agrees to pay 50 per cent of what they owe because they maintain that this is all they can afford, consideration must be given to the alternatives if the answer is ‘no’. Are you likely to recover everything that is due? Or is it more probable that you will force the tenant into insolvency and risk receiving nothing?
Assessing your risk exposure can be hard, which is why we suggest enrolling the help of a professional that can assist you by:
- undertaking a review of the tenant’s financial position;
- testing the strength and robustness of their current business plan;
- investigating their pre and post-Covid performance; and
- clarifying whether they have availed themselves of any available grants and loans, where short-term funding appears to be the root cause of their problems.
A lawyer can also help you to consider your own financial and commercial needs and whether acceding to a tenant’s request might in any way risk jeopardising your own position or viability.
Options for resolving a lease dispute
There are several ways in which a commercial property dispute can be resolved, some of which necessitate going to court and others that do not. Determining the right option requires careful consideration and a review of your lease terms, as this may prescribe the approach that you and your tenant are expected to take.
Direct negotiation
The most efficient way to resolve any dispute is through direct negotiation, which continues until you reach an acceptable agreement. In many cases it will be beneficial to appoint a lawyer to provide ongoing advice in order to ensure you do not agree to something you might later regret. For example, some things may no longer be appropriate when the recession ends and the economy begins to recover.
Mediation
Where direct negotiation fails, it may be useful for you and your tenant to agree to refer your dispute to an independent mediator whose role will be to try to help you broker a deal that works for you both.
The mediator does not determine the rights and wrongs of the matter, but rather encourages the parties to find a commercially acceptable way in which the dispute might sensibly be resolved.
The process is non-binding and voluntary (unless made mandatory by your lease) and is a frequent feature in most tenancies to encourage disputes to be resolved outside of court.
Arbitration
In some cases, it may be appropriate for a dispute to be referred to an impartial arbitrator who has the jurisdiction to impose an enforceable decision on the parties in much the same way as a judge, but without the need for you to issue court proceedings.
As with mediation, the process is voluntary unless prescribed by your lease and will result in you being bound by the decision that is made. This gives you the reassurance of knowing that your dispute will be resolved and is generally quicker than if you were to go to court.
Many commercial leases contain arbitration clauses, particularly for the resolution of rent and service charge disputes.
Court action
Where everything else fails, it might be that you are left with no option but to go to court. However, before commencing proceedings, it is important to consider what you are hoping to achieve and whether legal action is the best way forward, given the risk that a judge may find in favour of your opponent and you could find yourself exposed to significant delays and an adverse costs order.
That said, court action will almost certainly be required if your objective is to secure vacant possession of your property and you cannot effect forfeiture by peaceable re-entry or you are dealing with a lease that has the benefit of 1954 Act protection. Court action may also be necessary to resolve a service charge dispute or a disagreement over repairs or a lease extension.
Further information
If you need help to resolve a business dispute relating to your commercial property lease or rent arrears, please contact Sanjay Chandarana on 020 7845 7447 or email sanjaychandarana@iwg.co.uk to see how we can help.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.