Caution advised on rent disputes

While the government is still encouraging landlords to be pragmatic and agree payment terms with tenants for rent arrears, especially in hard-hit sectors such as retail and leisure, some landlords will no doubt want to explore their full range of options when it comes to recovering losses.

Unfortunately, some are no longer in a position to soft-pedal; interest rates are rising and commercial imperatives and shareholder pressure are kicking in. In places where demand for space and rent levels are increasing, it would be foolish for landlords not to want to ride that wave.

The old playbook included issuing a debt claim or even presenting a winding-up petition with a view to putting tenant companies into compulsory liquidation.

Landlords considering such action now first need to be wise to the forthcoming Commercial Rent (Coronavirus) Bill, which will still protect certain types of tenant businesses from petitions. Where tenants’ arrears pre-date Covid or have arisen due to factors unconnected with it, it might still be possible to proceed with a petition.

For those keen to avoid pushing tenants further towards insolvency, there might be less aggressive options worthy of consideration. For example, landlords might want to establish if there are other breaches of the lease (apart from non-payment of rent) as a trigger for recovering possession.

Landlords should consider whether their portfolio is ripe for repurposing, especially out-of-date retail space into mixed-use schemes. If this is on the cards, landlords would be wise to consider their options before rent demands for March quarter are issued.

We certainly expect a rise in rent disputes now that the gloves are coming off, but landlords should be thinking ahead as to what they are trying to achieve before they decide their next move and the right course of action.

Claire Lamkin is real estate disputes partner at Kingsley Napley