Guest Blog: How to Resolve Commercial Lease Disputes Before They Get Out of Hand
By Jonathan Lilley, executive chairman of Blaser Mills Law
Although the Government has now lifted its ‘work from home if you can’ advice, statistics show that more than 60 per cent of businesses plan to continue working remotely in some capacity going forward, making the pre-pandemic, solely office-based working model largely a thing of the past.
This has resulted in many commercial office tenants looking for ways to terminate their leases early to reduce overheads and focus on investing in their remote working practices.
It is not just commercial office landlords who have suffered. The trend of increased online shopping has also led retail tenants to look for ways to pivot their businesses accordingly, leaving commercial units empty and landlords dealing with the fallout.
This has resulted in a rise in commercial lease disputes as businesses look for ways to bring their tenancies to an end prematurely.
Types of disputes
Rent payment has been one of the main causes of disputes over the past 18 months. Many commercial tenants have found themselves in rent arrears due to lockdowns and restrictions on trading and, where tenants are continuing to withhold rent, landlords are becoming frustrated and disputes are arising.
Some tenants have tried to use the pandemic to bring their current lease to an end, which in most cases is not possible, unless there is a clear break clause that allows them to do so. Here we are seeing more commercial disputes as tenants attempt to withdraw from a lease they are still bound to or seek to force a landlord into a surrender.
Disputes around liabilities and obligations have also grown, especially as many high street and office premises remained vacant for a long period throughout the pandemic.
In most leases, tenants are required to keep the property clean, tidy and in good condition, and disputes have arisen when tenants have not maintained the property whilst it was not in use.
There are several ways a commercial lease dispute can be resolved, and deciding which option is best for you will require careful consideration and an in-depth review of your lease terms. This can also be carried out by your lawyer.
The easiest and most cost-effective method of resolving a dispute is to go through the process of direct negotiation between you and your tenant. In most cases it is beneficial to involve your lawyer who will be able to provide ongoing advice to ensure you do not agree to something that leaves you in a worse position.
If direct negotiation fails, you may wish to approach your tenant with the prospect of mediation. By involving an independent mediator whose role it is to help you reach an agreement, you can devise a deal that works for both you and your tenant in the short, medium and longer term.
It is not the mediator’s role to advise on who they believe is right or wrong, but to support both parties in finding a commercially viable way to resolve the dispute. The process is non-binding and voluntary, unless made mandatory in the terms of your lease and is encouraged as a way to resolve disputes outside of court.
In some cases, the appropriate course of action is for a dispute to be referred to an impartial arbitrator who can impose an enforceable decision on you and your tenant without the need for you to commence legal proceedings.
Similar to mediation, the process is voluntary unless stated in your lease and will result in you and the tenant being bound to the overriding decision. This provides reassurance that your dispute will be resolved and is generally quicker than court proceedings.
Sections 82 and 83 of the Coronavirus Act imposed a three-month moratorium on landlords’ abilities to forfeit leases of commercial property for non-payment of rent in England and Wales. That period has been extended several times and the Government announced on 16th June that it has been further extended to 25th March 2022.
The relevant provisions of the Coronavirus Act apply to the majority of commercial leases and prevent landlords from taking any action to forfeit for non-payment of rents or other sums, including service charges and insurance rent. The Act currently provides that, in any existing proceedings begun before 26th March 2020, there can be no order for possession before 25th March 2022. Despite sections 82 and 83, forfeiture by peaceable re-entry would still be available to a landlord for breaches unrelated to non-payment of rent or other sums due.
If all else has failed, you may find yourself left with no option but to go to court to resolve issues. Before commencing any legal action, it is important to consider what you are trying to achieve, and if court action is the best way to do this. There is always the risk that the judge may elect to side with your tenant and you could face significant costs.
Court action is the best option should you wish to remove the tenant from your property and where it cannot be done by forfeiture through peaceable re-entry. It may also be the only option if your goal is to resolve a service charge dispute or a disagreement over a lease extension or tenant repairs.
Many tenants have suffered extreme hardship for reasons entirely beyond their control and it is important to bear this in mind and carefully consider the stance you take if a tenant is trying to dispute something.
A lawyer can help you assess your risk exposure in these situations to help you understand what the best course of action is. They can also assist you in carrying out a review of the tenant’s financial position to allow you to understand the reasoning for their dispute, as well as assess your own financial and commercial needs to decide which route of dispute resolution is best for your needs.