Commercial Landlord and Tenant
We act on behalf of wide range of commercial landlord and tenants operating across a broad spectrum of sectors. These include retailers, transport operators, sports clubs, manufacturers, professional services businesses, bar and restaurant operators and private investors. Our commercial landlord and tenant practice is one the busiest in the firm. Because we know our stuff and advise on these issues on a daily basis, we can often provide immediate guidance. We give decisive and practical advice and rarely ‘sit on the fence’.
For a landlord, removing a tenant who doesn’t pay their rent or has no regard for their lease covenants is a big decision. The landlord needs to know that they are making the right decision and that if they proceed it is executed correctly and appropriately. Careful consideration needs to be given, for example, to issues of waiver. For a tenant, if your landlord re-possesses, your business will be severely disrupted and could even fold, so you need good advice and quickly.
We advise landlords on their options, help them choose the best one and take prompt action on their behalf to enforce, whether that be by arranging peaceable re-entry, serving a statutory notice or by issuing possession proceedings.
When a commercial landlord terminates a lease for breach it is known as “forfeiture”. A tenant is entitled to apply for relief from forfeiture, in some cases, even after the landlord has taken back possession. By asking for relief, the tenants is asking the court to restore the lease. Generally, the court will grant relief if the tenant pays off any arrears, puts right any breaches complained of and pays the landlord’s costs. However, relief is not usually granted where the landlord has evicted using bailiffs enforcing a court possession order. This is one of the advantages to landlords in forfeiting by court proceedings, rather than taking peaceable re-entry. We assist both tenants in applying for relief and landlords in opposing relief applications.
Enforcement of Lease Covenants
There are other ways for landlords to enforce tenant covenants than possession proceedings. It may for example be that the landlord would like the tenant to stay, but they just want to stop the tenant from using the property unsafely or to restore some alterations made to the building without the landlord’s permission. In these circumstances we advise landlords on the full range of options and take enforcement action on their behalf, including, if appropriate, by obtaining an injunction. We can also advise tenants accused of breaching lease terms on how to protect their position, including examining whether the landlord has waived its right to forfeit and examining whether the alleged breach is in fact a breach in the first place.
We assist landlords in recovering rent arrears from current and former tenants and against guarantors. We can advise on the full range of enforcement options available (including insolvency proceedings and charging orders) and are usually able to trace the whereabouts of defendants.
Unfortunately, some tenants do run into financial difficulties and if they do, they are at risk of insolvency. Sometime the first the landlord knows of this is when they receive a letter from an insolvency practitioner advising that the tenant has gone into administration or liquidation. We can advise landlords as to where they stand if this happens and what they can do, including whether they can continue to charge an administrator rent if the tenant’s business continues to trade under their control.
In other cases, the threat of insolvency (such as a bankruptcy or winding up petition) can be an effective tool to get paid. It is often true that whichever creditor pushes hardest gets paid, but this can become brinkmanship and requires skilled negotiation. If you push too hard and the tenant becomes insolvent, the landlord may be at the back of a very long queue. We can advise landlords on the benefits and shortcomings of using the threat of insolvency to get paid and are skilled at negotiating with tenants and insolvency practitioners in these situations.
Serving and Challenging Break Notices
Break notices are provisions in leases entitling the landlord and/or tenant to terminate the lease early, usually within a specified window of time and, in the case of tenant’s break clauses, often subject to pre-conditions, such as not being in arrears or handing over vacant possession at the termination. The pre-conditions are applied by the courts very strictly.
There is a lot at stake for tenants in ensuring that any break provisions are exercised correctly. The tenant may not find out that the landlord takes issue with the exercise of the break until the tenant has signed up to new premises and packed to move out. For this reason, we are regularly instructed to serve break notices on behalf of commercial tenants and to advise on compliance with pre-conditions. Conversely, we are also instructed by commercial landlords to advise on whether tenant break provisions have been validly exercised and, if appropriate, we challenge them. Where successfully challenged, substantial settlements can be negotiated.
Renewal and Termination of Business Tenancies
Many business tenancies have security of tenure under the Landlord and Tenant Act 1954. Where the Act applies, tenants are entitled to apply to court for a new lease if the terms cannot be agreed with the landlord. Landlords can oppose renewal but only on limited grounds, some of which attract compensation and some of which are discretionary. These grounds include redevelopment and own use. The procedures under the Act are complex and mistakes can lead to serious consequences.
A common issue in lease renewals is agreeing the new rent. In such cases, an application to court (or threat of an application) can break the deadlock as the parties know that ultimately the court will assess the rent at open market value. It is fairly unusual for these cases to proceed all the way to trial.
Opposed lease renewals are generally hard fought, because the landlord wants possession and the tenant wants a new lease. However landlords do sometime oppose renewal for purely tactical reasons in order to negotiate a higher rent.
We have extensive experience of dealing with both unopposed and opposed lease renewals, our lawyers having deal with over 1000 such cases for clients ranging from national pub companies to an owner managed fish and chip shop.
When entering into a lease the parties should give careful consideration to their repairing obligations. Many leases will require the tenant to put and keep the property in good repair, whilst others may require the tenant to keep the property in no worse condition that it was when they moved in.
Terminal dilapidations claims
When a tenant moves out at the expiry of their lease, the property will almost certainly, to some extent, be in disrepair. Claims by landlords in relation to such disrepair are almost inevitable and tenants need to budget for this and consider addressing the issue with their landlord before moving out. These claims are governed by a pre-action protocol , which requires landlords to instruct a building surveyor to inspect the property and to prepare a Schedule of Dilapidations. That Schedule is then served on the tenant, who will have the opportunity to instruct their own surveyor to inspect and add their comments to the Schedule. The parties are then expected to try to resolve the claim by, for example, negotiation or mediation, before entertaining litigation. There are complex legal issues involved in dilapidations claims, including statutory restrictions and common law issues in relation to loss and causation.
Interim dilapidations claims
Properties can fall into disrepair during a tenant’s occupancy. Understandably, a landlord may want to take steps to repair the property or at least to prevent further decline. For example, the roof may be damaged and if not fixed, water ingress will cause more extensive damage. There are strict statutory restrictions on interim dilapidations claims, which can make it difficult to enforce disrepair issues during the lease term. However a well drafted lease will include a clause entitling the landlord to serve a repair notice requiring the tenant to carry out repairs within a specified timeframe and entitling the landlord to carry out those repairs itself if the tenant does not do so. The cost of those repairs can then be claimed as a debt and is not subject to the statutory restrictions.
Dilapidations and break clauses
The issue of dilapidations frequently arises in connection with the exercise of break clauses. It may be a pre-condition of the valid exercise of a tenant’s break clause that the property is in substantial repair either at the date of service of the notice or on the date the notice expires. The issue of whether the tenant can walk away from the lease or be tied in for years to come may hang on the extent and nature of any dilapidations.
We advise and act on behalf of both landlords and tenant in relation to both terminal and interim dilapidations claims and break clauses with repair based pre-conditions. Our lawyers have dealt with properties from diverse range of sectors including broadcasting, science labs and nightclubs. Dilapidations are often a team effort and we can work closely with your surveyor or assist you in finding the right person for the job.
Landlord’s Consent for Change of Use, Alterations, Subletting, etc.
Issues can arise where a commercial tenant wishes to sublet, assign, carry out alterations or change the nature of their use of the property (often referred to as ‘alienation’ provisions). This may be fundamental to the tenant’s business plans and may lead to significant additional income. Many leases will require the landlord’s consent for such changes. The landlord may be unwilling to give consent or may seek to impose strict conditions on their consent. In some circumstances, the landlord may be prohibited from unreasonably withholding consent, although the lease will not necessarily say that. In such circumstances the tenant needs to consider carefully how they express the request and the landlord needs to carefully consider the reasons they give if they refuse consent, together with any conditions they may wish to impose and the timing of their response. Where the landlord gets this wrong, the tenant could apply to court for an order that consent has been wrongly withheld and an order that consent be given. The court would examine the landlord’s reasons for refusing consent and any conditions and could also take into account undue delay in the landlord’s response. A failure to respond at all may also be deemed to be unreasonable refusal. We advise both tenants and landlords on the practical effect of alienation covenants, draft requests and responses, and, where appropriate, deal with court proceeding up to trial. In one such case, one of our lawyers secured consent at trial enabling a tenant to open a pharmacy in a medical centre. This was projected to add over £1m of revenue to the tenant’s business in its first year of trading.
Most longer term commercial leases contain provisions for the periodic review of rent. It is essential that both landlords and tenants understand and correctly implement these provisions. Disputes often arise as to whether rent review provisions have been validly exercised (particularly when they are exercising late) and as to the calculation of the new rent. The rent calculation can in part be a question of the correct interpretation of the formula in the lease, but is ultimately a question of expert opinion and is often linked to market rent. A good valuation surveyor is essential and we can either work with your surveyor or help you find someone suitable.