Commercial landlords – essential information

RENT ARREARS
Not good news — These days £5,000 is the minimum figure for serving a statutory demand and for bankruptcy proceedings against an individual.

The previous figure was a much more reasonable £750 (which remains the minimum for service of such documents where the debtor is a company).

Effectively therefore most landlords will have to pursue in the County Court where the tenant is an individual and the debt is under £5,000. Time consuming, inconvenient and expensive.
N.B. Commercial Rent Arrears Recovery system is only available for recovery of rent, VAT and interest. It doesn’t cover service charges or any other items reserved by a lease and applies only to purely commercial lettings.

IS THE ANSWER RENT DEPOSITS?
A possible option for the landlord could be to insist on a rent deposit of at least £5,000 when dealing with a tenant who is an individual — but is that realistic in the case of a small letting?

When there is a request for consent to assign to an individual, is the answer to insist on a rent deposit of this size in return for consent being given?

The danger is that if no rent deposit is taken individual tenants may simply walk away from outstanding rent liabilities because the landlord does not want the expense and inconvenience of chasing in the County Courts for a small claim.

FORFEITURE OF A LEASE
A cautionary note
A landlord may well have the right to forfeit if a tenant is in breach of covenant.
If the landlord inadvertently commits an act which recognises the continued existence of the lease then he loses his right to forfeit.

An objective test applies, e.g.:

• Issuing and accepting rent for rent due in advance will be a waiver even if it’s done on a “without prejudice” basis.
• Unwittingly confirming the ongoing landlord and tenant relationship, e.g. by merely inspecting the premises or entering into discussions about the surrender of the lease or a possible consent to assign.

In the current market forfeiture is not a frequent occurrence but, in the case of a bad tenant where forfeiture might be required, or if the market picks up again, the above points should be borne in mind.

SCHEDULE OF CONDITION/REPAIR
You will be aware that it’s becoming more common in many commercial leases to see a provision such that “the tenant is not required to put the premises in any better state of repair or condition than they were at the start of the lease as evidenced by a schedule of condition annexed to the lease”.

Great for the tenant but not for the landlord. “No better” means no protection at all for the landlord.

The tenant can wreck the premises and they will be in “no better” condition. This clever wording is to be avoided.
If this clause must be included then you should make sure that the provision is to ensure that the premises are maintained in “no worse” condition than they were at the start of the lease.
Better still, more and more landlords are being advised to resist this and to require that if there is a specific defect then that should be identified and liability for that defect specifically excluded.
So if you are a landlord then the advice is to resist the more general clause if at all possible.

FORFEITURE – TENANT INSOLVENCY
All too frequent an occurrence these days.
Remember that the Insolvency Act 1986 provides that no legal process can be started without the Court’s permission if a tenant is in administration—more cost for the landlord.
Happily, recent decisions have made life easier. If forfeiture doesn’t impede the purpose of the administration then the landlord may well succeed in recovering the premises.

BUSINESS TENANCY OF FORMER AGRICULTURAL BUILDING
A letting for non-agricultural purposes of a building which was an agricultural building will not be a farm business tenancy but a conventional business tenancy under the Landlord and Tenant Act 1954—a much more acceptable situation for the landlord.

IMPORTANT

SCHEDULE OF IMPLEMENTATION OF ENERGY EFFICIENCY STANDARD
More potential expenditure for landlords, but don’t ignore it. Please read on.

As you will know, minimum energy efficiency standards have been introduced not only into the residential property sector but also into the commercial private property sector as well.
The key dates are as follows:

• April 2016 – from that date residential tenants are able to carry out prescribed energy efficiency improvements with the landlord’s consent, which must not be unreasonably withheld.
• April 2018 – from that date the regulations made it unlawful to grant new leases of residential or commercial property with an EPC (Energy Performance Certificate) rating of less than ‘E’.
• April 2020 –from this date this will extend to all residential leases; and
• April 2023 – the provisions will be extended to all commercial leases. This provision could cost the property sector a lot of money.

The number of properties which have an EPC rating of F or G in England and Wales is estimated at
2-300,000!

The advice is therefore to implement a programme of upgrades now, spread the cost possibly by service charges and not leave it all to the last minute.

We have many years of detailed experience in negotiating commercial leases, so do please contact us if you are considering taking on a new tenant. We can help you minimise the risks.

If you have any questions or require further advice, please contact:

David Hall, 01789 772955 / email@hallreynolds.co.uk

The information, materials and opinions contained on this website are for general information purposes only, are not intended to constitute specific legal or other professional advice, and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances. Hall Reynolds LLP does not accept any responsibility for any loss which may arise from reliance on information or materials published on this website