Commercial lease disputes: common issues and effective legal remedies

Entering the world of commercial real estate can be a fascinating venture, whether you're a landlord leasing your property or a tenant looking for the perfect business location. The process is often straightforward: a commercial property is leased to a willing tenant, and a mutually beneficial relationship begins.

In this arrangement, the tenant generally takes on the responsibility for property maintenance, while the rent, which often experiences an upward trend over the years, is typically the landlord's main focus. It's worth noting that commercial leases can be heavily weighted in either direction, depending on the specific terms agreed upon.

However, as with any commercial relationship, there's potential for disputes to arise. These conflicts can become protracted and result in considerable expense. Despite these challenges, the commercial property landscape continues to thrive, proving that with effective negotiation and conflict resolution, it's possible to maintain a balanced, profitable relationship.

There are four common causes of commercial property disputes.

Breaches of lease obligations

All commercial leases contain obligations on the part of the tenant to use the property in certain prescribed ways. This may include upkeep obligations, subletting restrictions, signage rules and rules on what type of business can be conducted from the premises.

If any tenant is in breach of any of these obligations, then the landlord needs to ascertain whether the breach is remediable to irremediable. If the breach is remediable, then the landlord must give the tenant a chance to remedy the breach. If it is not remediable, or a remediable breach is not remedied, then the landlord has the right to ‘forfeit’ the lease, which is to say, evict the tenant and take the property back.

Landlords will have some obligations too and, if the landlord is in breach, then the tenant can enforce their rights against the landlord.

Dilapidations

Dilapidations is a term-of-the-art that describes items of disrepair that are covered by repairing and maintenance covenants under the lease. They can be superficial, such as decoration, or major, such as repairs needed to the structure. If, as is often the case, they fall to the tenant to put right and the tenant fails to do so, then the landlord can seek action to force the tenant to make the repairs. Alternatively, the landlord can effect the repairs and seek compensation from the tenant.

If the lease has ended, the tenant is supposed to reinstate the property to the same state as when the tenancy started. This often leads to disputes about the extent of the dilapidations or the cost of the repairs. The landlord can, in some cases, pursue the tenant for damages in respect of any unremedied dilapidations after the lease term has ended.

Rent and service charges

Business tenants have far fewer rights than residential tenants. If a business tenant falls behind on the rent or service charge payments, then the landlord does not require a court order to take enforcement steps. These may include forfeiting the lease, sending in bailiffs who specialise in commercial rent arrears recovery, to “levy distress”, which means that the bailiffs may seize the tenants’ assets and sell them to pay the rent arrears. The landlord can also choose to draw down on a deposit, pursue a guarantor (if there is one) or issue court proceedings.

Tenants, alas, have very little in the way of recourse if they find themselves in financial difficulty. If they are struggling, then their best bet is to contact the landlord and seek to negotiate some payment plan or settlement.

Ending or renewing a business tenancy

When a business lease expires, the tenant can choose to vacate the premises or seek a new lease. When it comes to renewing leases, the tenant does have some statutory protections, namely by virtue of The Landlord and Tenant Act 1954. The Act provides that a business lease will automatically continue after the end of the term unless the landlord, assuming they do not want to renew the lease, follows a strict and time-sensitive series of protocols that involve the serving of prescribed forms of notice on the tenant before the expiration of the existing lease.

So, if the tenant does not receive the requisite notice before the end of the term, then the lease will continue under the same terms. However, if the landlord agrees to grant the tenant a new lease, then again, the landlord must serve notice of this on the tenant, following which negotiations for the terms of the new lease can begin.

Negotiation or mediation is better than litigation

Although going to court is an option, it can prove ruinously expensive, so all other options should be tried before anyone heads to court.

The best option for resolving disputes is for both parties to attempt to negotiate a settlement but this requires goodwill on both sides, which is not always present. If private negotiations are getting nowhere, then it is advisable for the parties to seek mediation.

If you are a tenant in dispute with your landlord, or a landlord in dispute with your tenant, then you really should seek the appropriate legal advice from an experienced professional. A good dispute resolution solicitor who is well-versed in landlord and tenant disputes can often steer the parties towards a solution without the need to cross the threshold of a courtroom.

For further information and trusted legal advice regarding commercial property, get in touch with us at Carlsons Solicitors.