An issue that may increasingly lead to disputes in the coming months relates to commercial property repairs, given the numbers of properties either left empty or little used during the pandemic lockdowns – or now stand empty as businesses folded.
Under the ongoing temporary government measures to assist businesses, there is still a moratorium on the commercial landlord’s right to exercise its right to forfeit a lease for rent arrears. However, landlords can act in the case of breach of repairing obligations.
There will be tenants who are unable to pay the rent because of the drop in income during covid-19, and have temporary protection from eviction. But there will also be tenants who are – again, because of the fall in income – unable to carry out required repairs and maintenance to their properties.
Landlords have the right of re-entry in the event of the tenant failing to comply with its obligations and it is common for commercial landlords to have the ability under the lease terms to take action for a tenant’s failure to repair, though sometimes choosing to wait until the lease expires before taking action.
Successive lockdowns have had an impact. Properties standing empty potentially pose additional repairing and maintenance issues, such as frozen pipes, pest control and water problems. Tenants who neglect their repairing obligations could face problems further down the line, including expensive dilapidation claims.
There is also the impact of social distancing measures, which will have prevented surveyors from attending properties to prepare schedules of dilapidations; and builders and other contractors from carrying out repairs on site in some cases.
How to manage disputes
Where an issue arises between the parties, the government’s Code of Practice for Commercial Property Relationships During the covid-19 Pandemic is a useful reference point. Though the code is primarily aimed at encouraging businesses to negotiate affordable rental agreements in a time of crisis, the principles are wider-ranging.
Put simply, the code encourages the parties to take a balanced view to addressing the issues. This is a matter of good practice. The code reflects the reality that businesses have been navigating exceptional circumstances which are by no means over.
Importantly, it is a voluntary code and does not change the underlying legal relationship or lease contracts between landlord and tenant and any guarantor – (so it cannot be used as a defence to a legal claim for rent arrears).
The parties should work together to resolve the issues as far as they are able to avoid expensive court action. Tenants should be clear as to any concessions they need in respect of performing their repairing obligations; and commercial landlords should be willing to engage with tenants and work with them effectively. This is in the interests of all parties.
Covid-19 has not changed the fact that the parties should try to negotiate a resolution when a dispute arises, or go to mediation if necessary, rather than starting costly court proceedings.
The remarks of Chief Master March in the important rent arrears case of Commerz v TFS are worth highlighting. Here, the defendant retailer had not engaged with the claimant landlord despite the fact it owed a year’s worth of rent, as well as service charge arrears, by the time of the hearing.
However, the landlord – who won – had tried proactively to engage with the defendant in the hope they could reach agreement over payment of the rent arrears. In fact, the claimant had worked hard to avoid court proceedings.