THE falling property market has led to an 18-fold increase in the number of disputes between landlords and tenants being settled in the High Court, according to new EWF research.
Among the issues being litigated in court are:
l Disagreements over the amount of rent during the renewal of a commercial lease
l Claims by Landlords for disrepair of properties at the end of a lease
l Payment defaults on rent
The number of disputes appear directly to correlate to the economic downturn having put tenants and landlords alike under much greater financial pressure and weakening landlords' financial position considerably.
Similarly, the downturn has also adversely impacted tenants’ – particularly retailers – ability to meet rental payments. Given this, both the landlord and tenant are likely to wish to negotiate hard – making fewer concessions and hence the increase in disputes.
The Diamond Jubilee, Euro 2012 football tournament and the London Olympics may ease some pressure on retailers, but in many parts of the country commercial landlords are facing high vacancy rates and tenants appear to be making greater use of statutory insolvency procedures to walk away from rental obligations.
Landlords may believe that viable tenants are making use of statutory insolvency procedures while tenants question the landlord’s flexibility over lease terms.
The financial demise of a tenant is an occupational hazard for a commercial landlord, but this is in far sharper focus at the moment. On a tenant becoming insolvent, a landlord needs to consider the options quickly. There are a number of options, some of which are highlighted below:
l Liability of a liquidator or administrator for ongoing rent
l Pre-pack administrations
l Utilising rent deposit monies
l Enforcing lease obligations against previous tenants and guarantors
l Distraining for rent
One thing is for sure. A landlord needs to move quickly – understanding the provisions of the lease is not enough. A landlord needs to know the complex statutory provisions around enforcements during insolvency.
Keeping a dispute out of a court is often far better than pursuing a case which may not deliver the result sought.
However, when finances are tight parties tend to be less willing to compromise. At these times, experienced professional – and most importantly dispassionate – advice should be sought to take the emotions out of the process.