In this article, our experienced commercial property dispute solicitors walk you through the nature of commercial property disputes, explore some of the most common causes of disputes, and cover some practical tips on how to prevent these. We explain what rights you have (both landlord and tenant) and discuss the various options that may be available to you if you find yourself facing a commercial property dispute.
Jump to:
- What is a commercial property dispute?
- What are the most common causes of commercial property disputes?
- How can landlords and tenants prevent commercial property disputes?
- What are the rights of landlords and tenants in a commercial property dispute?
- How do you resolve a commercial property dispute?
- How long does it typically take to resolve a commercial property dispute?
- How much does it cost to resolve a commercial property dispute?
- Summary
What is a commercial property dispute?
A commercial property dispute is a legal disagreement about business premises or commercial land. They can arise for several reasons but often stem from issues surrounding money, rights and ownership. Resolving commercial property disputes quickly and carefully with the help of experienced solicitors is key to maintaining the value of a property/investment.
What are the most common causes of commercial property disputes?
Commercial rent arrears: Commercial rent arrears occur when a tenant fails to pay the rent owed on a commercial property. This could be due to financial difficulties, disputes with the landlord, or other reasons. When a tenant stops paying rent (intentionally or unintentionally), they are in arrears. Depending on the circumstances, tenants may be able to negotiate a suspension or deferment of rent with their landlord, but the landlord is entitled to take action to recover unpaid rent. This includes opting to recover rent via a strict procedure known as Commercial Rent Arrears Recovery (CRAR) which enables the landlord to take control of the tenant’s goods and sell them.
Dilapidations claims: A dilapidations claim is when a landlord sues a tenant for the cost of repairing a commercial property that's been damaged or left in disrepair by the tenant at the end of the lease. This can include repairing things like broken fixtures, damaged walls, or neglected maintenance.
Right to light: A right to light claim is based on a property owner’s right to have enough natural light coming through their windows. If a new building or structure blocks this light, the affected property owner can potentially claim for compensation or ask for the obstruction to be stopped eg by way of an injunction. These claims are typically assessed based on factors such as the level of interference with light, the impact on the affected property, and the potential financial implications.
Boundary disputes: Boundary disputes arise when there is a disagreement between property owners regarding the exact location or extent of their property boundaries. These disagreements can include not knowing where the boundary lines are, arguing about using shared spaces, or disputes over who should take care of fences and walls. Boundary disputes can become long and complicated, with significant implications for the affected properties and their owners. It is wise to try to resolve matters through discussions or get an experienced property disputes solicitor involved at an early stage to advise you on your options.
Adverse possession: Adverse possession is a legal principle that allows a person who does not own a piece of land to become its legal owner after occupying it for a certain period. This period is typically 10 or 12 years depending on whether the land is registered. To fulfill the requirements for adverse possession, the occupier must openly inhabit the land without the owner's permission, use it as if they were the rightful owner, and do so continuously for the specified period. After this time has elapsed, the occupier can technically apply to the Land Registry claiming ownership of the land, provided they meet all the legal conditions. The owner of the land has to be notified of the application and may then resist or dispute the claim.
Breach of restrictive covenant: A restrictive covenant is a legal obligation that limits the way the land or property can be used and is set out in the property's title deeds. Breaches occur when a property owner violates the terms of a restrictive covenant that is attached to the property. Examples of restrictive covenants can include restrictions on building additional structures, running certain businesses, or making alterations to the property without permission. When a breach occurs, the affected parties may seek legal remedies such as injunctions or compensation.
Tenant insolvency: This refers to the situation where a tenant renting commercial property becomes insolvent, meaning they are unable to pay their debts as they fall due. This can have significant implications for the landlord, including the potential for unpaid rent, lease termination, and the need to find a new tenant. In such cases, the landlord should refer to their lease to understand what rights and remedies are set out when a tenant becomes insolvent, and they should also seek legal advice.
How can landlords and tenants prevent commercial property disputes?
Professionally drafted lease agreement: Once in place, the lease becomes the primary reference tool for understanding the rights and responsibilities of both parties. It is crucial to organise a professionally drafted commercial lease that is comprehensive and unambiguous from the start. Both tenants and landlords must be clear on what is covered by the lease, the nature and extent of their contractual commitments and what this means for their business. This helps avoid any misunderstandings or unmet expectations in the future.
Open dialogue between the landlord and tenant: To minimise the likelihood of commercial property disputes arising or escalating, it is crucial to maintain open lines of communication between landlords and tenants. By tackling any issues early on , both parties can work towards resolving them effectively. It is essential to be receptive to reasonable solutions to prevent conflicts from becoming unmanageable or impossible to resolve.
To be honest and upfront if issues arise: Many commercial property disputes stem from money issues. As a tenant, if you are having problems with cash flow or other financial difficulties that impact your ability to pay rent, don’t shy away from discussing this with your landlord. The earlier the better - by being upfront and honest about your financial circumstances, there may be room for negotiation. You may find that the landlord is willing to accommodate you, for example, the landlord may be willing to agree to a concession, deferral or reduced rent for a period to help you get your finances in order. As the age old saying - if you don’t ask you don’t get. Otherwise, the matter may escalate beyond compromise, leaving both you and the landlord in a more difficult position and putting a strain on your relationship.
Collect evidence if you believe there is likely to be a dispute: If you anticipate a dispute on the horizon, then keeping accurate logs of incidents that occur relevant to the dispute can help parties understand each other’s position better, put matters into context and even help with mediation/negotiations. This could even involve taking photographs of the property or videos if the dispute relates to the condition of the premises.
Wider picture thinking: As a tenant, if your business thrives in its current premises and/or location, it may be in your interests to promptly address any issues with your landlord before they escalate to ensure the success of your business. If you are a landlord and the tenant has a good history overall, or market conditions are tough so that you might struggle to find a replacement - it may be wise to resolve matters at an early stage amicably or consider making commercially feasible concessions in the short-term.
What are the rights of landlords and tenants in a commercial property dispute?
The main source of rights of landlords and tenants when it comes to their business relationship and the property in question will be set out in the lease, although there are also statutory rights, remedies and protections that come into play. Some key areas when it comes to commercial property disputes include:
For Landlords:
- Rent: Landlords can expect to receive rent and any other payments reserved as rent from tenants as per the terms of the lease agreement. Provided they meet all the criteria and follow the prescribed methods under the Commercial Rent Arrears Recovery (CRAR) regime, landlords can seize and sell tenant’s goods to cover unpaid principal rent only.
- Property access: Landlords often reserve the right to enter the property for maintenance or inspection purposes, provided proper notice is given to the tenant.
- Property damage: Landlords can follow a specific dilapidations protocol to recover compensation from tenants for property damage at the end of the lease. This involves preparing a schedule of work identifying the damage and quantifying the landlord’s loss as a result of the damage to the property.
- Breach and non-compliance: Landlords can take legal action against tenants who breach the terms of the lease agreement. Landlords may seek an injunction to prevent tenants from engaging in further breaches of the lease agreement or may seek to evict the tenant.
- Terminating the lease: Landlords may have the right to terminate the lease agreement if the tenant fails to meet their obligations, subject to the terms of the lease. For example, the landlord may have the right to forfeit the lease by peaceable re-entry for non-payment of rent or obtain a court order evicting the tenant for non-compliance with other terms.
For Tenants:
- Quiet enjoyment: Tenants will have the right to quiet enjoyment of the property without interference from the landlord. Even if this is not recorded in the lease, it will be implied by law.
- Right to renew: Under the Landlord and Tenant Act 1954, qualifying tenants are granted a right to renew their lease at the end of the term, subject to certain exceptions.
- Safety: Tenants can expect that the landlord will maintain the parts of the building and or property they are responsible for in a safe and habitable condition, and for any necessary repairs to be carried out promptly.
- Legal action: Tenants can dispute any charges or actions taken by the landlord that are unlawful, or in breach of the terms of the lease. For example, if the landlord wrongfully terminates the lease, tenants can pursue damages to cover their financial losses or any disruptions to their business operations.
How do you resolve a commercial property dispute?
There is no one size fits all approach when it comes to resolving a commercial property dispute. The likelihood of settlement and success very much depends on your dispute and relationship with the other party. There are various options you can consider with the help of an experienced solicitor that may be more cost-effective and less time-consuming than going to court. Which route you opt to take will often depend on the willingness of the other party, but may include:
Negotiation: The first step should always be to engage in open and upfront communication with the other party. This can be done directly or through a solicitor. Although opening dialogue with the other party may seem daunting, you may be surprised how quickly disagreements can be resolved when you engage in constructive discussions, focus on the root cause and identify potential solutions that maintain the business relationship. Negotiations tend to be a lot more successful if both parties try to understand the other’s position, are willing to compromise and work together towards a mutually acceptable outcome. Communications and negotiations can be written or face to face, but it is important to keep a record of discussions and outcomes in case they need to be referenced later.
Mediation: This involves a neutral third party assisting both parties to work towards finding a mutually acceptable solution. The mediator is unbiased and any decision or outcome from the talks is not binding unless they are recorded in writing. This is particularly useful where you wish to protect and maintain your tenant-landlord relationship, as it is amicable and less forceful or intimidating relative to formal court proceedings.
Arbitration: Arbitration is the closest you can get to a court like process without going to court. If opted for, arbitration involves both the landlord and tenant submitting their case to a qualified arbitrator, who will evaluate the evidence before him/her and make an unbiased, decision that is legally binding. It is a private and confidential process, meaning you would not have to worry about details of the dispute potentially being made public as is the risk with the court system.
Litigation: In more serious cases, or if other forms of dispute resolution have been unsuccessful, you may have to issue proceedings in court. You will almost always want an experienced solicitor representing you. It is worth noting that even once litigation starts, the courts always encourage parties to try to settle matters.
How long does it typically take to resolve a commercial property dispute?
Timeframes can vary significantly depending on the complexity of the issue, the willingness of both parties to negotiate, and the specific legal processes involved. In some cases, disputes may be resolved relatively quickly through informal negotiations or alternative dispute resolution methods such as mediation. More complex disputes that require formal legal action, such as court proceedings, can take much longer to resolve and may involve several months or even years of litigation. You must consider the impact of the commercial property dispute on your business and finances and engage an experienced solicitor to conduct a cost benefit analysis to help you decide how best to proceed.
How much does it cost to resolve a commercial property dispute?
The cost of resolving a commercial property dispute can vary widely depending on the type of dispute resolution mechanism followed.
If the parties can resolve the dispute through informal negotiations at an early stage without the involvement of lawyers, then the costs are mainly your time. If you opt for some form of alternative dispute resolution such as mediation, the costs may still be relatively low, primarily consisting of the fees for advice and representation during the negotiation process. Mediation, for example, typically involves the parties sharing the cost of the mediator, which can range from a few hundred to a few thousand pounds, depending on the complexity of the dispute and the experience of the mediator.
On the other hand, if the dispute escalates to formal legal action, such as court proceedings, the costs can be significantly higher. Legal fees, court fees, expert opinions (such as for property valuation or building surveyors) and other litigation costs can quickly add up, potentially running into tens of thousands of pounds or more (although some of these may be recoverable from the other party if you are successful).
Seeking early legal advice from an experienced solicitor can help you understand the potential costs and options available for resolving your specific situation in the most cost-effective manner.
Summary
While it may not be possible to avoid a dispute in all circumstances, there are steps parties can take to limit the potential of a dispute arising or escalating. The starting point is always to have a comprehensive, professionally drafted lease from the outset which sets out the rights and responsibilities of both parties clearly, and unambiguously. If both parties know what to expect from the commencement of their business relationship, this helps put things into perspective. If a dispute does arise, litigation is not inevitable. There are several alternative dispute resolution mechanisms available that can be more cost effective and less time-consuming. Ultimately it is important to take a commercial view and not lose sight of the bigger picture when it comes to the success of your business or the preservation of your investment as landlord or tenant. Here at Harper James, our experienced solicitors have helped both parties navigate commercial property disputes of all types and complexity. We take the time to get to know you, your business and your unique circumstances and explore all options available.
