Several factors can cause commercial property disputes, and these conflicts can quickly evolve into costly and complex litigation. As such, whether your property portfolio consists of a few units, a large commercial building, or even whole business/retail parks, it is vital to do everything you can to resolve any issues early and mitigate the impact on your operations. Understanding the common pitfalls can help you to avoid such disputes.

1. Service charge disputes
   Tenants often pay service charges to cover the costs of maintaining and providing services to a property. Set out in a lease or tenancy agreement, these charges are one of the main areas of dispute between leaseholders and landlords – especially as the fees can be variable and unpredictable.
   
   

   Typical service charge disputes initiated by tenants encompass issues such as the calculation of service charges, the reasonableness of associated costs, and the quality of services provided.

   Service charge disputes also occur when tenants do not pay the fee on time. Where a leaseholder falls into arrears, the landlord will seek recovery of any monies due to ensure standards are maintained. However, recovering such arrears is not always a straightforward process.

2. Leasehold disputes
   If you own a leasehold property, you have an agreement from the freeholder to use the home/unit for a set number of years. However, leases are complicated documents to understand, and a lack of understanding over the rights and responsibilities of both parties can lead to disputes.

   Common disputes between leaseholders and freeholders include:

   • Service charge disputes
   • Lease extensions
   • Breaches of lease
   • Lease forfeiture and possession
   • Ground rent arrears
   • Nuisance actions
   • Repairs and maintenance
   • Leasehold enfranchisement

   The UK government is planning to ban leasehold houses, with the housing secretary promising to stop the “feudal” system of freeholders maintaining control over properties. At present (December 2023), the proposed ban does not extend to flats, which currently make up about 70% of all leasehold properties. Nevertheless, under the new legislation, all statutory lease extensions will be for an additional 990 years, rather than the current 90 years for flats and 50 years for houses.

3. Dilapidations
   A landlord might make a dilapidation claim at the end of a lease, where the tenant has not addressed any disrepair or damage to a property that they are legally obligated to put right. A claim may also arise mid-tenancy for breach of repair covenants.

   Common dilapidation disputes include over the extent of the repairs required or the cost of addressing dilapidations. In most cases, resolving the dispute will require looking at the lease terms and providing evidence of the initial and current condition of the property.

   The Dilapidations Protocol sets out the process for making claims for damages against tenants at the termination of a tenancy. The Protocol aims to help landlords and tenants resolve their dilapidation disputes and avoid litigation by agreeing to a settlement before legal proceedings begin.

4. Development disputes
   Development disputes may arise between developers, contractors, planners, or other parties involved in the development process. In a dynamic and often challenging environment, development disputes are an all-too-common occurrence.

   Common development disputes may relate to:

   • Delays (leading to associated loss and expense)
   • Outstanding payment/non-payment
   • Boundary disputes
   • Poor quality work or defective workmanship
   • Property damage
   • Changes in project scope
   • Planning permission issues
   • Building control issues
   • Post construction issues.

   With different parties and complex contractual terms in the mix, even a simple matter can escalate to disrupt projects, strain budgets, and sour relationships. Often, the quickest and best way to settle a development dispute is through open communication between the parties. Where that is not enough, legal advice is recommended.

5. Landlord insolvency
   When a residential landlord becomes insolvent and cannot pay their debts, this can have a profound impact on their tenants. Disputes may arise over the handling of the property, security deposits, and ongoing tenancy arrangements. In some cases, the property may be put up for sale at the liquidator’s request.
   
   • If the tenancy is binding. The new owner becomes the landlord and will need to go through a separate eviction process under the terms of the tenancy agreement if they want to get rid of the tenant.
   • If the tenancy is not binding. The tenant can delay the eviction by two months to provide time to find somewhere to live. If the lender does not agree to the extra time, the tenant should apply to the court to order the lender to delay possession.

   A commercial tenant will likely hear about their landlord’s insolvency from the appointed insolvency practitioner. Eviction is by no mean the norm following landlord insolvency, but legal advice should be sought by commercial tenants in such circumstances to ensure their rights are protected.

6. Rent arrears
   Rent arrears disputes occur when tenants fail to pay rent as stipulated in their lease agreements. When a residential tenant can no longer afford to pay and refuses to vacate the property, landlords may take legal action to recover the unpaid rent. However, we advise landlords to first talk to their tenants to attempt to resolve the matter amicably. Where eviction proceedings are necessary, the landlord should contact a lawyer to serve a Section 8 Notice for rent arrears.

   When a commercial tenant falls into rent arrears, a number of remedies are available to the landlord. These include forfeiture, possession proceedings, arrears recovery, eviction, statutory demand, and winding-up proceedings. However, early communication is recommended as some of these options can have devastating consequences for the tenants and their ability to continue to trade.

   While legal action can help persuade the tenant to settle the arrears, if pursued the wrong way, it can irreparably damage the relationship between the parties. Therefore, any proceedings against commercial and residential tenants must be handled correctly.