Travis Perkins – Real Estate Bulletin – June 2021

Welcome to the June edition of the Travis Perkins Group Real Estate Bulletin.

• Rent arrears – COVID-19
• Contracting out – term commencement date
• Service charge – apportionment
• Conditional contracts – notice of satisfaction of conditions

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Rent arrears – COVID-19

A landlord sued its tenant for non-payment of rent and service charge of around £160,000 accruing during the period of lockdown in relation to its premises in a London shopping centre. The tenant ran three arguments by way of defence:

• The landlord’s claim was issued prematurely and contrary to the Code of Practice for Commercial Property Relationships during the COVID-19 pandemic;
• The claim enabled the circumvention of measures put in place by the government to protect commercial tenants and prevent landlords from using certain remedies, such as forfeiture and winding-up petitions;
• The landlord was in breach of its insuring covenant, as it should have insured against loss of rent as a result of forced closures and/or denial of access due to a notifiable disease and/or government action

The High Court granted summary judgement to the landlord. The Court found the landlord was not in breach of the Code (which did not have the effect of suspending or varying the parties’ obligations under the lease); the issuing of a debt claim was not a ‘loophole’ in the tenant protection measures (the government had not altered a landlord’s ability to bring a claim for unpaid rent – in fact, it is one of the few remedies that has not been fettered by pandemic legislation); and that the landlord was not required to insure against a notifiable disease or government intervention (neither of which were defined ‘Insured Risks’ under the lease).

Practical tips:

• Practical tip – many commercial tenants have withheld rent on the basis of imposed closures during the various periods of lockdown
• Practical tip – this decision, and a similar one a week before, involving a number of household name operators, gives useful guidance on some of the issues tenants have been raising
• Practical tip – see this article by David Marsden and Alison Willis for further detail

Contracting out – term commencement date

A tenant had leases of units in various designer retail outlets. The landlords had served the usual ‘warning notices’ to exclude security of tenure under the Landlord & Tenant Act 1954, and the tenant’s solicitor had accepted service of the notices. The tenant’s statutory declarations were sworn by a senior employee of the tenant.

At the end of the contractual term of the leases, the landlords demanded possession, but the tenant argued the leases had security of tenure, due to various defects in the contracting out procedure. One argument was that the statutory declarations in each case were invalid because they did not clearly specify the term commencement date – for example, in three of the declarations, the term was described as ‘for a term commencing on the date on which the tenancy is granted’.

Unfortunately for the tenant (which is the same one as in the rent arrears case mentioned above), the High Court and the Court of Appeal found that the leases had all been validly contracted out, and none of the forms of wording used in any of the declarations invalidated the process.

Practical tip:

• Practical tip – where the term commencement date is unknown at the time of service of the landlord’s warning notice (which is often the case), as long as the tenancy can be identified by the notice and declaration, the notice to exclude security of tenure will be valid

 

Service charge – apportionment

Under its lease of part of the Criterion Building in Piccadilly Circus, a tenant (a different one this time!) was required to pay ‘a due proportion’ of the total cost to the landlord of providing services in relation to the building. In terms of what was payable, the leases stated ‘a fair proportion to be determined from time to time by the Landlord or the Landlord’s Surveyors taking into account the use made of and benefit received from the services and expenses and each of them…’

The landlord claimed service charge from the tenant in the sum of over £2.2 million for a period covering 2014 to 2019; M claimed that the way the landlord had apportioned the service charge unfairly favoured another tenant in the building at its expense.

The High Court found in favour of the landlord.

Practical tips:

• Practical tip – where there are several tenants and the service charge is to be split, and it makes no financial difference to a landlord how that is done, the landlord can make a subjective decision on the split provided the decision is rational
• Practical tip – tenants may consider negotiating fixed proportions that are set out in the lease
• Practical tip – there was a further hearing a few days later about whether the landlord’s costs of the service charge proceedings should be assess on a standard or an indemnity basis – the tenant had covenanted in the lease to pay all of the landlord’s costs as long as they were ‘properly incurred’, but the court did not feel this meant they should be assessed on a standard basis. Tenants should consider negotiating costs clauses to exclude recovery of costs on an indemnity basis or to provide that the costs must be proportionate

 

Conditional contracts – notice of satisfaction of conditions

Parties entered into a conditional agreement for development and lease. There were six conditions to be satisfied before a ‘Conditions Long Stop Date’ on 30 December 2016. Details of the conditions and the basis on which they were satisfied or waived were set out in schedules 2 to 7 of the agreement and there was a provision in the main body of the agreement (clause 2.7) about giving notice as to the satisfaction of the conditions.

A week or so before the Conditions Long Stop Date, the landlord’s solicitors gave notice to the tenant that the conditions were satisfied on that date and that ‘in accordance with clause 2.7 of the Agreement for Lease, we give you notice, on behalf of our client, that the Agreement for Lease is now unconditional and the remaining provisions of the Agreement for Lease will apply’.

The tenant argued that, notwithstanding the reference to giving notice under clause 2.7, specific notices were also required in relation to each individual condition. Six months later, the tenant’s solicitor gave notice purporting to terminate the agreement on the basis that it had not become unconditional by the Conditions Long Stop Date.

The High Court found in favour of the tenant. Looking at the specific wording of the agreement, the Court found that the drafting indicated that, for an individual condition to be satisfied, notice had to be given identifying the manner in which each condition had been satisfied and the landlord’s notice had not done this.

Practical tips:

• Practical tip – where a conditional agreement includes separate provisions requiring one party to notify the other that a condition has been satisfied – or waived, as the case may be – those provisions must be adhered to strictly
• Practical tip – this is the case even where there is a generic notice provision, because otherwise the parties would not go to the trouble of negotiating detailed operative provisions

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For more information or advice on anything covered in this bulletin, please contact Paul Tomkins and Heloise Horton from our Real Estate team.

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The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.