Commercial Property Dispute Solicitors
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Commercial property disputes usually arise from a breach of a tenant’s obligations within their commercial lease. These contracts are usually ‘deeds’; a type of contract that is witnessed, signed and dated.
Where a problem arises landlords have a range of significant potential options.
Taking possession of commercial premises can be as simple as sending in a bailiff to change the locks and forfeit the lease but especially in a challenging market, alternatives can offer landlords the ability to create and use existing leverage to better improve their commercial outcomes.
A commercial lease can come to an end by agreement, known as ‘surrender’, or a landlord can in certain circumstances end/terminate the lease. This is known as ‘forfeiture’.
Before any steps are taken to end a lease, a commercial property landlord must ensure they are entitled to take those steps, and/or are clear on the impact of enforcement, surrender or forfeiture. For example forfeiture terminates the lease moving forwards. All rights and obligations of the tenant and any guarantor will immediately end and the landlord will become liable for all outgoings such as business rates and utilities moving forwards. If there is a guarantor they will also not be liable for any sums moving forwards (because the lease no longer exists).
In a challenging market landlords are well advised to review and assess their commercial position before taking any immediate steps for the above reasons. This is partly to ensure landlords are clear on the consequences of different decisions/outcomes, but is also to ensure any technical problems are avoided. For example if there is any element of residential property under or within a commercial building and lease that can complicate matters considerably and as above a landlord may not want to unknowingly become liable for outgoings on a vacant unit/property unless this has been fully and carefully considered. Repossessing commercial property without taking appropriate steps can leave landlords vulnerable to applications and claims for damages and costs by former occupiers. This can result in an expensive reversal by the courts including orders the landlord pay the tenant damages and costs (as well as their own). Obtaining advice in this complex area of law is incredibly important for all these reasons.
Common Commercial Property Disputes
Disputes surrounding the lease on a commercial property can arise for many reasons. The most common issues we encounter, review and advise on, include:
- Outstanding rent and rent arrears
- Boundary disputes
- Breach of restrictive covenants
- Disrepair and dilapidations
- Unlawful subletting
- Lease renewal
- Lease surrender
- Party wall disputes
- Service charge disputes
- Possession claims
- Notice to terminate under the Landlord and Tenant Act 1954
- Adverse possession claims
Resolving Commercial Property Disputes
Good communication between landlord and tenant can help avoid disputes. Where rent is being received quarterly in good times it isnt uncommon to go years without much need to communicate. In a more challenging market and economy there can be bumps in the road. Early notice of issues can be helpful and useful to landlords- having an agent instructed might also assist in terms of a regular programme of inspection and (as part of that) maintaining contact.
Good communication allows the parties the prospect of avoiding escalation of disputes, and the best chance of amicable resolution without needing to consider legal options. It isnt impossible or unusual for problems to be overcome avoiding the need for escalation, and this has the obvious benefit of preserving relationships for the longer term.
The above noted landlords especially need to be cautious in dealings with tenants who might be deliberately trying to take advantage. Care needs to be taken to ensure there is no suggestion of a compromise having been reached (unless that is agreed- in which case it should be in writing), and/or where .
Regular contact recorded in writing will serve as a helpful foundation for mediation or arbitration if required. Keeping written records such as emails, letters and phone notes and an incident log noting the dates and locations of relevant events is highly advisable from the outset of any commercial property dispute. Understanding when the relationship begins to break down, or negotiations falter is essential. Appropriate legal advice should be taken at that point or earlier.
Legal intervention is often strategic and early intervention, such as applying pressure on the company tenant and any guarantor early, can lead to a swift outcome and be ultimately far less costly than court proceedings.
Commercial Property Disputes
Commercial leases for business premises should be clear and well-drafted.
Landlords must ensure their tenants fully understand their rights and obligations under the tenancy agreement. When both parties comprehend a lease clearly, it avoids misunderstandings that can quickly escalate into disputes.
Most landlords and property professionals are aware of the significant and extensive protections that apply and are available to residential tenants including within various landlord and tenant legislation- acts and regulations that have developed over decades. Fortunately for landlords the vast majority of that legislation falls away and has no relevance to commercial situations and commercial leases. Whilst there are some important and relevant pieces of legislation (such as Landlord and Tenant Act 1985), the starting principles are that the parties are bound by what they sign. It is very common for a tenant to enter into a lease of commercial property on a ‘FRI’ or ‘fully repairing and insuring’ basis. That can create a situation where a tenant is responsible for paying rent, for all outgoings, for keeping the building insured and in good repair, and where the tenant can often be responsible for returning the premises to the landlord in better condition than when they received it. Add in that rent deposit deeds and guarantors are very common standard practice, and its easy to understand why landlords of commercial property are in an incredibly strong position where something goes wrong.
At Helix law we have acted for landlords nationally in commercial lease disputes. As a firm of specialist litigation solicitors we are well placed to maximise your position and to pursue a tenant or guarantors in the most cost effective, necessary and direct ways to obtain the best possible outcomes. We’re also happy to back our own advice and where tenants and/or guarantors own assets and it stacks up for you and for us, to be only paid if we’re right.
Dilapidations disputes arise when the tenant and the landlord disagree about what condition the property should be left in at the end of a lease.
Much depends on the terms of the lease and, in some cases, the quality of the evidence of the initial condition.
The parties to a dilapidations dispute must follow the Pre-Action Protocol for Claims in Relation to Damages for the Physical State of Commercial Property at Termination of a Tenancy (the ‘Dilapidations Protocol’).
Paragraph 3.3 of the Dilapidations Protocol states that the Schedule of Dilapidations should be sent within 56 days of the termination of the tenancy. Therefore, early advice from an experienced solicitor and/or surveyor is essential to a satisfactory resolution. Tenants need to be aware of the effect of section 18(1) of The Landlord & Tenant Act 1927 which may have the effect of substantially reducing the amount they are obliged to pay a landlord.
Commercial Rent Arrears Recovery
Commercial Rent Arrears Recovery or CRAR sets specific guidelines for commercial property owners to recover rent arrears lawfully.
CRAR can be a quick and cost-effective process for landlords, and most enforcement costs can be recovered from the tenant. However, when using CRAR, a landlord waives the right to forfeiture, meaning they cannot regain possession of the property using a bailiff or other means.
Our experience is that CRAR can be a blunt instrument for this reason and it can often be better for a landlord to pursue a money claim with the lease continuing (but whilst preserving forfeiture rights as below) than using CRAR.
CRAR applies once the net unpaid debt equates to seven days’ rent. The CRAR procedure has three steps:
- The landlord issues an Enforcement Notice stating that the tenant has seven days to settle their rent arrears.
- If the rent remains unpaid, a landlord can instruct an enforcement officer to take control of tenant’s property equal to the amount of money owed.
- The tenant’s property is typically sold at auction.
When the property items are sold, the landlord can keep the amount owed in rent plus any costs associated with the process, such as instructing an enforcement officer. Any surplus funds must be returned to the tenant.
Other frequent issues encountered with CRAR include where the tenant claims they do not own assets, or where they are leased. In those circumstances the process can be ineffective not least as unlike where a money judgment is obtained, a landlord has no right to inquisitively challenge what a tenant says. Obtaining Judgment and then seeking to enforce that judgment can be more attractive for these reasons, but unquestionably takes longer, and obviously a cost; benefit analysis is important.
Forfeiture is a process whereby a lease ceases to exist. The tenant will have no rights or obligations after forfeiture takes place. By exercising rights of forfeiture a landlord can therefore regain possession quickly, usually immediately. Whilst that can appear incredibly attractive, care over the details is paramount. For example in a difficult market where it may not be possible to secure a tenant, by forfeiting the lease the landlord will become liable for all outgoings- including business rates and utilities. Even a non paying tenant might be preferable to an actual liability to pay those costs and expenses. Where a lease is forfeit a landlord is also unable to pursue a tenant for future arrears; the lease is ended.
There are two ways for a landlord to exercise forfeiture:
- Peaceable re-entry
involves the landlord or enforcement officer entering the property without force and changing the locks. If the tenant offers no opposition, peaceable re-entry can be the quickest and most cost-effective method to regain control of a commercial property. However, the landlord faces risks from forfeiture. The tenant can apply to the Court for relief from forfeiture and claim compensation for wrongful eviction.
- Application to the courts
It is dangerously easy for a landlord to inadvertently waive their right to forfeit a commercial lease. The simple act of reminding a tenant that rent is overdue can be argued as acknowledging that the tenancy is continuing. This may result in the Court determining that the landlord has waived their right to forfeit.
Forfeiture is therefore an incredibly blunt but important instrument. Whether it is the best option for a landlord needs to be carefully considered. If a tenant has assets or there is a guarantor with assets, or where the prospect of a new paying tenant is low, it can make sense to not forfeit a/the lease, but rather to seek to pursue recovery against the tenant and/or guarantor, or against the rent deposit if there is one. Careful review of options is best practice to protect a landlords position in these circumstances.
Taking Possession is Not Always the Right Option
It might seem that regaining possession of the property is always the best option, particularly in the case of an entrenched dispute. However, forfeiture has implications and is only sometimes the best and most expedient option.
Before taking possession and forfeiting the lease, it is essential to consider if that is the best option. Sometimes it is better not to forfeit. There may be a guarantor, and notice must be served under Section 17 of the Landlord and Tenant (Covenants) Act 1995.
We are an expert team of specialist litigation solicitors. Helix Law offer practical advice on a diverse range of commercial property disputes acting nationally for landlords and investors involved in property related litigation. We provide practical and cost-effective solutions to problems landlords frequently encounter.
We advise commercial landlords on how to mitigate the impact of defaulting tenants with a wide range of options. Landlords must ensure that all legal processes are correctly implemented to protect against tenant claims and later disputes, court injunctions or applications for relief from forfeiture. Early intervention can minimise business disruption and reduce overall costs.
Whether you are a commercial landlord, a commercial tenant with a business lease, an investor or asset managers our team would love to discuss your situation and help you secure the right outcome for your commercial property dispute.
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