When a commercial lease of premises in the UK ends, disputes often arise over the condition of the premises. Putting the property into a lettable condition may take time, causing further losses to the landlord in terms of rental income.
Landlords may wish to recover consequential losses such as rent, service charge, insurance premiums and business rates, in addition to the cost of repairs. We set out key considerations for landlord and managing agents below:
1. Entitlement to recover loss of rent is not automatic
Loss of rent is not a given. It must be shown that it flows directly from the tenant’s breaches. The disrepair must be the cause of any delay in re-letting. If the premises would otherwise be vacant, a claim for loss of rents is unlikely to succeed. One possible exception to this, in Scotland, is where loss of rent is included in a payment obligation under a Scottish lease.
2. Causation is king
The key question is: “did the tenant’s breaches actually cause the void period?”. If other factors, such as market conditions or over-renting in the area, are the real cause, the landlord’s claim will be weakened.
3. Section 18 still bites (in England & Wales)
Section 18 Landlord and Tenant Act 1927 caps damages for repair works at the loss of value caused to the premises by the disrepair, or reduces a claim to nil where repair works will be superseded by a landlord’s redevelopment.
Where repair works are required, the damages will be capped by section 18. If the disrepair doesn’t materially affect rental value, loss of rent claims can be reduced - or wiped out entirely.
The 1927 Act does not apply in Scotland. However, alternative measures of loss might still come in to play which could have an impact on loss of rent claims.
4. Evidence is key
It is important to gather evidence to support a claim for loss of rent. Evidence showing demand for lettings in the area, and trends in rents/terms is important, along with a clear programme of the remedial works required. Expert evidence should also be obtained, linking the condition of the premises to the delay in reletting.
5. Duty to mitigate
Landlords have a duty to mitigate loss. This includes progressing works promptly and actively marketing the property. Delays in carrying out repairs or re-letting can undermine or reduce a loss of rent claim.
If you are a commercial landlord or asset manager tenant lease-end liabilities, or you have any queries about how these claims might impact you or your business, do not hesitate to contact a member of the Real Estate Disputes team or your usual Brodies contact.
