Our commercial property dispute solicitors would often advise that disputes can be prevented at the contractual and agreement stages, with proper drafting and thorough checking or negotiating of the lease or sale/purchase documentation. However, circumstances change and sometimes a dispute is unavoidable.
Here we’ll be covering the most common dispute situations in these commercial property disputes FAQS:
What commercial property dispute resolution services we can help you with?
At Harper James we offer both a specialist commercial property dispute service and general business dispute resolution, with lawyers working across both areas to achieve the best outcome for our clients. Find out more about the kinds of commercial property disputes we can help with, and our business dispute services.
Insolvency of a commercial landlord
If a landlord becomes insolvent, it’s likely that the liquidator will want to take the commercial property and sell it.
In practice, this should mean that you’re able to continue occupation under your lease but the landlord will change when the property is sold to another party.
In such circumstances, the tenant has the right of first refusal under the law in England and Wales. This means that you are given the chance to buy the property before the liquidator can sell it to a third party.
It’s also possible for the liquidator to disclaim the freehold because it is an ‘onerous property’. This relieves the liquidator from responsibility and liability for that premise. The property becomes a property of the Crown and the tenant can continue occupation under the original lease.
Where the commercial property becomes property of the Crown, there will no longer be a landlord responsible for maintenance and repair. This problem can be overcome by applying to the First-tier Tribunal for a formal appointment of a manager and receiver. Since this is a complicated process, it’s highly recommended that you seek legal advice when doing so.
Commercial rent arrears
The consequence of a commercial tenant falling into rent arrears depends on the terms of a lease.
In most leases, it’s usually agreed that the landlord will have the right to re-enter the property and terminate the lease after 14-21 days of rent being payable.
The landlord may draw down from the rent deposit paid by the tenant (provided there was a rent deposit deed entered into). If the landlord chooses this course of action, the tenant must be notified.
Alternatively, the landlord may instruct an enforcement agent to take control of the tenant’s goods and sell them to recover the amount owed (the ‘CRAR’ procedure). This process requires the tenant receiving notice at multiple stages during the procedure.
Where the tenant sub-leases the property, the landlord can serve a notice on the sub-tenant requiring them to pay the owed amount to the landlord directly (instead of through the tenant). This notice may also set out the landlord’s ability to rely on the CRAR procedure.
Another option for the landlord is to pursue payment from any guarantor. Although the process for this depends on the terms of the lease, the common procedure is to issue court proceedings.
The final two options to recover money owed by a tenant are to serve a statutory demand (where the amount owed exceeds £5,000) or issue court proceedings. Where a tenant fails to comply with a statutory demand, the landlord can wind-up the tenant’s business. Similarly, court proceedings will impose a court order requiring payment. Court proceedings are a lengthy process as it can take months to receive a hearing date.
Insolvency of a commercial tenant
If the tenant becomes insolvent, it’s likely the lease will define this as an event of default. In such circumstances, the landlord can serve notice on the tenant, which terminates the lease.
If the tenant owes money to the landlord under the lease, the availability of remedies will be dependent on the insolvency proceedings against the client.
It may be possible to recover the money owed in the same way as detailed in rent arrears when a tenant falls into rent arrears. This means the landlord may be able to rely on the CRAR procedure, or may draw down on any rent deposit, seek payment from a guarantor, serve a statutory demand, or issue court proceedings.
What is adverse possession?
Adverse possession is when a third party becomes the owner of land as a result of their adverse possession of the property.
If the land is unregistered, the third party must have been in possession without the owner’s permission for 12 years before they apply to register their interest with the Land Registry. Usually this is supported by either a statutory declaration or a statement of truth.
If the land is registered, the third party must have been in possession without the owner’s permission for 10 years before they apply to register their interest with the Land Registry. If their application isn’t successfully opposed, the third party becomes the owner of the property.
What is a dilapidation claim?
A dilapidation claim is a claim by the landlord against an outgoing tenant, for breach of repair covenants.
It’s common for leases to specify a standard of repair and maintenance of the property as a schedule of condition annexed to the lease. This sets out who is responsible for repairs and maintenance. Where the tenant has failed to maintain these standards by carrying out relevant repairs, decoration, and other structural work, the landlord has two options.
Firstly, the landlord may require the tenant to carry out the work to bring the property up to the required standard. If this is the option chosen by the landlord, it’s important for the landlord to begin investigating and inspecting the property before the lease comes to an end. This will allow the tenant to receive sufficient notice from the landlord to carry out the repair work and complete it before leaving.
The alternative option is that the landlord may ask the tenant to pay damages for the tenant’s breach of repair or maintenance covenant in the lease. This will allow the landlord to recover damages for carrying out the repair or maintenance work themselves and for any loss of rent resulting from having to carry out this work. It’s important to note that the damages received from the tenant for the breach of repairing or maintenance covenant cannot exceed the difference in the value of the property in its condition at the end of the lease and its value if the tenant hadn’t breached the repairing or maintenance covenant.
It’s important to note that the landlord won’t be able to make a dilapidation claim if they intend to redevelop the property such that the property will be demolished or substantially altered.