A top legal expert has shared his advice for the best ways to deal with commercial property disputes.
Oliver Maxwell specialises in property-based disputes, with a particular emphasis on disputes involving commercial real estate assets. His guidance comes as data shows the UK is witnessing a sharp rise in business disputes.
According to statistics, which were recently released by insurance brokers Gallagher, there has been a significant increase in the number of UK businesses hit by litigation since 2019.
Contractual disputes were among the biggest concerns, experienced by 35% of the 750 senior leaders surveyed.
For the property sector this is a particular concern as disputes involving commercial premises can be costly, time-consuming and burdensome for landlords, tenants, and businesses alike.
Oliver Maxwell is a Senior Associate within the dispute resolution team at legal firm Smith Partnership and has years of experience in this field.
He says: “A property is probably the most valuable asset you’ll ever own, and if you let it out to a commercial tenant, you need to make sure there are safeguards in place to encourage them to look after it.
“It is vital to take precautions and seek professional support at an early stage when dealing with commercial property disputes. Whilst every dispute will inevitably turn upon its own facts, having an understanding the various factors in play and the underlying causes that can lead to disputes arising can often help a party to get on the front foot.”
Maxwell says current backlogs and delays in the court system have made it even more important to seek expert advice if you find yourself in the midst of a dispute.
He comments: “Involving the court can often result in delays. The court system is not functioning properly at present, predominantly due to a lack of funding and judicial time. Court proceedings are also expensive, and can pose significant risks to both parties involved. No matter how well a claim is framed or pleaded, the outcome of any dispute is ultimately given to a judge (effectively as a third party) to decide the outcome if the matter proceeds to a trial. Because of this, it is much better to seek a resolution by settlement as quickly and as amicably as possible because, ultimately, that’s what most people will want.”
Here, he shares his advice on what a commercial property dispute is, the most common causes, and how best to deal with one.
What is a commercial property dispute?
A commercial property dispute occurs when there is a legal disagreement relating to business premises or commercial land. There are many causes that can trigger a commercial property dispute, and these must be carefully considered to ensure the most favourable outcome.
The common causes of commercial property disputes
There is a long list of different reasons that could lead to a commercial property dispute, but these are some of the most common:
Lease agreement disputes – Through poorly written, obscure or unclear lease terms, disagreements between landlords and tenants can arise, particularly over rent increases, maintenance responsibilities, or lease termination conditions.
In order to reduce the likelihood of disagreements arising, lease agreements should be reviewed carefully before signing to ensure that they are clear, detailed, and sufficiently accurately to reflect the intentions of the parties. Both the landlord and the tenant should understand their rights and obligations set out within the agreement. This, in turn, should reduce the risk of disputes arising in the future.
Breach of contract disputes – Both parties are expected to uphold their contractual obligations to the other, and failure to do so could result in an allegation of breach of contract. In a commercial real estate context, contracts can have a wide application, and can cover the sale, leasing, management and/or development of property.
Again, comprehensive and detailed contracts must be drafted to ensure that the parties understand the terms and conditions that will govern their relationship going forward.
Property maintenance and repairs – Disputes can often arise between parties to a commercial lease as to when a property must be repaired, and who should be responsible for the work. The lease agreement will usually set out in some detail the parties’ respective obligations. These obligations are referred to as “covenants”, but it will not always be clear who is to be responsible for a specific element of a property and what repair work is required to comply. Much will turn upon what property has been given (or “demised”) to the tenant under the lease and what the extent of the obligations are. Moreover, the standard of repair or maintenance can differ depending on the age of the property, its location, the kind of tenant that it would attract and whether the parties have agreed to limit either party’s obligations by reference to a schedule of condition.
It is very important to understand the repair and maintenance covenants before entering into a lease agreement but, equally, it is also important to appreciate that these disputes can arise not only at the “end” of the term, but also “within” the term, and different remedies are open to the parties depending on when the dispute arises.
Rent and service charge disputes – Aside from the general obligation upon a tenant to pay the rent (which can cause a dispute if they do not do so), the lease may allow the landlord to review the rent at certain times during the contractual term. Usually (but not always) these reviews will “upwards only”, being the greater of the rent currently being paid or the current market rent (i.e. at the time of the review). Where the landlord initiates the process, disputes can arise as to the current market rent, and there may be provisions within the lease as to how these disputes may be resolved (usually by reference arbitration or adjudication). Disputes can also arise where reviews have been missed, and the landlord seeks to “retrospectively” review the rent. As to service charges, disputes can arise when a tenant believes they are being overcharged for communal expenses. The lease will usually require the landlord to produce an account of all expenditure to justify the service charges being raised, but often this account (if certified in a certain way) will be conclusive in the absence of “manifest error”. There are, however, ways that service charges can be challenged and, again, the lease usually makes provision for an alternative form of resolution such as the appointment of an independent expert.
The rent review procedures should be clearly outlined and defined in lease agreements, with a level of transparency in service charge calculations.
Boundary and ownership disputes – Legal battles can occur as a result of conflicts over property boundaries or ownership rights. These disputes often arise due to unclear property lines, encroachments, or contested ownership claims.
It is important that thorough land surveys are completed before purchasing property, and that there is accurate documentation of boundaries. Before resorting to legal action, you can resolve potential issues through negotiation or mediation.
How to approach dispute resolution
Maxwell explains that: “If you are faced with a dispute, you should seek advice at an early stage and have a clear objective in mind. Whilst sometimes the law will support your aims, you should have an appreciation that sometimes it will not.
“Not all disputes will require the intervention of the court, so you should consider alternative forms of dispute resolution such as mediation, strategic correspondence or joint settlement meetings.”
It is highly advised to seek professional support when dealing with a commercial property disputes: “Our team at Smith Partnership are acutely aware that your real estate assets will often be amongst your most valuable. We will carefully listen to your objectives to create the most pragmatic and cost-effective strategy to realise them.
“We’re clear on the law, and concise in our approach.”