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Parties to a commercial lease often disagree on terms relating to the lease agreement. Tenants and landlords typically quarrel the most when it comes to negotiating payment of rent terms. Avoiding a lease dispute over rent negotiations starts with transparent negotiations between you and your landlord to ensure your lease agreement is unambiguous. However, despite your best efforts, a lease dispute can often arise during the rent negotiation process. This article will discuss common leasing disputes that concern rent negotiations over a commercial property.
Rent Free Period
As a tenant, you may try to negotiate a rent-free period before agreeing to a commercial lease agreement. Although, a landlord may offer this at the outset to encourage the tenant to sign the lease agreement. You and your landlord may subsequently have a dispute over the rent free period as the lease progresses. This may occur when each party has misunderstood the agreement for the rent-free period. For example, they could disagree on the following:
- agreeing on any rent-free period in the first place; or
- the duration of the rent-free period, which is typically anything from 3 to 12 months.
It is, therefore, crucial that you document the details of any rent-free period.
Rent Reviews
Commercial lease agreements can contain a rent review clause. This details that a landlord can review the level of rent their tenant pays periodically throughout the lease.
Rent reviews will usually increase the rent. Your landlord will assess the increase based on the type of rent review the parties agree on. For example, your landlord could base the rent review on:
- the open-market rent level; or
- a price index such as the retail price index (RPI).
As a tenant, you are likely aware that your commercial lease agreement contains a rent review clause. This clause allows your landlord to raise the rent. However, you may disagree with the new rental payment amount. Consequently, you and your landlord will likely be embroiled in a dispute in terms of negotiating rent. Should such a dispute arise, you should first consult your lease agreement. Your lease agreement will likely detail the dispute resolution process you and your landlord must follow. This may be to appoint an independent expert or carry out arbitration.
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Rent Problems
A typical commercial lease dispute is when a tenant has rent arrears in a commercial lease. You are best advised to discuss why you cannot make regular rent payments with your landlord. Engaging in discussions with your landlord minimises the chances of a lease dispute arising. You both may decide to come to an agreement on when you will pay or make up the deficit. Such an outcome would prevent a drawn-out and costly lease dispute.
Likewise, as a landlord, you should check in with your tenant if they are exhibiting signs of financial distress. Signs of distress include that your tenant may be paying you only part of the payment due. Alternatively, your tenant may be paying you from a different bank account. Regardless of the distress sign, you should ask your tenant if they are experiencing issues. You could suggest a way to overcome this before a commercial dispute about rent arises.
Rent Arrears
When a commercial tenant goes into rent arrears, it is likely that a lease dispute will arise. To prevent a lease dispute, both parties may agree for the tenant to repay the arrears gradually. However, when a rent arrears commercial lease dispute occurs, the commercial landlord has to take more drastic action. This could begin with a ‘Letter Before Action’. This informs you as the tenant that your landlord will take court action if the rent arrears are not paid by a specific date.
A commercial landlord may also decide to threaten the tenant with insolvency bankruptcy. Alternatively, a landlord may try to resolve a rent arrears dispute, which is:
- to carry out Commercial Rent Arrears Recovery (CRAR), where enforcement agents seize the tenant’s goods; or
- terminate the lease through forfeiture.
This cheat sheet outlines what you should be aware of in your lease agreement.
Key Takeaways
Commercial lease disputes concerning the payment of rent are prevalent. There are various forms of rent dispute. These include, for example, rent-free periods, rent increases after a rent review and rental arrears. It is best to avoid a dispute about rent arrears. You should negotiate with your landlord to avoid such a dispute, particularly if you experience any initial rent payment problems. To prevent a dispute about any agreed rent-free period, you must document the details of this. Where a dispute does occur for rent arrears, your landlord has several means to resolve the matter. For example, your landlord may initiate court proceedings to recover the rent arrears. However, it is always advisable that you and your landlord first try and find an amicable solution.
If you need help understanding why rent negotiations are a common source of lease disputes, contact our experienced leasing lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A lease dispute is where the parties to a commercial lease agreement cannot agree on an issue that arises in the commercial lease.
A rent negotiation lease dispute can be over several different issues. For example, rent arrears or disagreement about an increase in rent after a rent review.
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