A Guide to Commercial Lease Disputes for Landlords and Tenants
Just as a dispute may well arise between a residential landlord and tenant, a commercial lease dispute may also arise between a landlord and tenant of a commercial property. Although the sources of commercial lease disputes are often the same, the methods of resolution may vary significantly. In this guide, we describe some of the more common issues that arise under commercial leases and explain how they are usually resolved.
What are common commercial lease disputes?
Some of the most common commercial lease disputes are:
- Service charge disputes
- Dilapidations claims
- Lease renewal under the Landlord and Tenant Act 1954
- Rent arrears
- Break clause disputes
- Rent review disputes
- Rights of way disputes
- Nuisance claims
How do you resolve a commercial lease dispute?
What you will need to do will depend significantly on the circumstances and the dispute in question. You can find more information about how common commercial lease disputes are often resolved below.
Most commercial lease disputes are settled by negotiation between the parties or their advisers. If that fails, mediation is often the next step, and many leases say that rent review and some service charge disputes go to an independent expert or an arbitrator rather than to court. If court proceedings are needed, the courts expect the parties to have tried to settle: since 1 October 2024, the Civil Procedure Rules allow a court to order the parties to take part in mediation or another form of alternative dispute resolution, and an unreasonable refusal can be penalised in costs.
Common commercial lease disputes for tenants
Can I sub-let my property as a commercial tenant?
This will depend on the terms stated in your lease. Most leases allow sub-letting only with the landlord’s consent and subject to conditions. Where the lease says consent is not to be unreasonably withheld, the Landlord and Tenant Act 1988 requires the landlord to give or refuse consent in writing within a reasonable time, and not to refuse it unreasonably.
What can I do if I feel my service charge is unreasonable?
For commercial leases, what the landlord can charge depends on the wording of the lease. The statutory protections for residential service charges (sections 18 to 30 of the Landlord and Tenant Act 1985) do not apply. Start by asking for a breakdown and supporting invoices, and check each item against the service charge clause. Managing agents who are RICS members must follow the RICS Professional Statement on service charges in commercial property (mandatory since 1 April 2019), which sets standards for budgets, accounts and transparency. Most service charge disputes are settled by negotiation; some leases send them to an expert.
Can I break my commercial lease early?
Whether or not you can break your commercial lease early will depend on the terms of your lease. For example, your lease may include a break clause. Break clauses are strictly applied: the notice must be served correctly and on time, and any conditions (such as paying all rent due or giving vacant possession) must be met exactly, or the break will fail. Unless the lease says otherwise, a tenant who has paid a full quarter’s rent in advance cannot recover the part covering the period after the break date (Marks and Spencer v BNP Paribas, 2015). You may also wish to assign or sub-let your lease to someone else, though this may not release you from your legal obligations. Our guide to the Authorised Guarantee Agreement explains how liability can continue after you assign.
Do I have the automatic right to renew my commercial lease?
If your lease comes within the protection of the Landlord and Tenant Act 1954 Part II, you will usually have security of tenure and the right to renew your lease – however, your landlord can resist this on certain grounds. The process usually starts with a section 25 notice from the landlord or a section 26 request from the tenant, and strict time limits then apply. Note that if you have been ‘contracted out’ of security of tenure, you have no automatic right to renew your lease.
My landlord is trying to charge me for dilapidations. What can I do?
You may find that once your tenancy has ended, your landlord is trying to make a claim for dilapidations against you. The landlord should follow the Pre-Action Protocol for Claims for Damages in relation to the Physical State of Commercial Property at Termination of a Tenancy (the Dilapidations Protocol), which includes sending you a schedule of dilapidations; you should normally respond within 56 days. The landlord’s damages for disrepair cannot exceed the amount by which the disrepair reduces the value of its interest in the property (section 18 of the Landlord and Tenant Act 1927), and nothing can be claimed for repairs that would be pointless because the landlord intends to demolish or substantially alter the building. Many claims are settled for much less than the schedule figure.
Common commercial lease disputes for landlords
What can I do if my tenant won’t pay rent?
The temporary COVID-19 restrictions on recovering commercial rent arrears ended in 2022, so the normal remedies now apply. A landlord can usually: claim the arrears as a debt through the courts; use Commercial Rent Arrears Recovery (CRAR), where enforcement agents take control of the tenant’s goods after at least seven clear days’ notice (available only where at least seven days’ rent is unpaid); claim against a guarantor or draw on a rent deposit; or, if the lease contains a forfeiture clause, forfeit the lease. Some of these remedies cannot be combined: using CRAR, or demanding rent after a breach, can waive the right to forfeit. See our guide to forfeiture of a commercial lease for how forfeiture works and when the tenant can apply for relief.
Should I allow my tenant to sub-let or assign their lease?
It is important to know the implications of allowing your tenant to sub-let or assign their lease – it really isn’t as simple as letting them “give” their tenancy to someone else. Doing so could have unfortunate consequences, such as an undesirable tenant having security of tenure on your property. There are certain situations in which you can refuse to give consent, or impose certain restrictions on them, such as requiring the outgoing tenant to give an authorised guarantee agreement. If the lease says consent is not to be unreasonably withheld, you must reply in writing within a reasonable time and give your reasons for any refusal. Our guide to the Authorised Guarantee Agreement (AGA) explains how consent to assign works.
My tenants have left the property in disrepair when vacating the property. Can I make a claim for the damage?
The terms of most leases will usually include a condition which obligates the tenant to maintain the property throughout their lease and return the property in a good condition at the end of the lease. As long as your commercial lease says this, your tenant has to ensure the property is in a good condition at the end of the lease. If they do not, you can make a dilapidations claim against them for the damage. Follow the Dilapidations Protocol, and note that damages for disrepair are capped at the reduction in the value of your interest in the property (section 18 of the Landlord and Tenant Act 1927), so a valuation is often needed before a claim is pursued.
Commercial Lease Disputes FAQs
It is not compulsory in every case, but the courts expect parties to consider it. Since October 2024 a court can order the parties to take part in mediation or another form of alternative dispute resolution, and refusing without good reason can lead to a costs penalty.
Yes, if the costs are not allowed by the lease or the amounts are not properly supported. Commercial service charges are not covered by the residential statutory reasonableness test, so the lease wording is key. Ask for a breakdown and invoices, and raise any challenge promptly.
The break is likely to fail and the lease will continue, with rent still payable. Courts apply break conditions strictly, so even a small shortfall in rent or failure to give vacant possession can be fatal.
Usually an independent expert or an arbitrator, depending on what the lease says. Many leases allow either party to apply to the RICS for one to be appointed if the parties cannot agree.
Not for repairs that would be pointless because the landlord intends to demolish or substantially alter the building. Damages are also capped at the reduction in the value of the landlord’s interest (section 18 of the Landlord and Tenant Act 1927).
Help with a Commercial Lease Dispute
If you are involved in a commercial lease dispute, our property dispute solicitors and commercial lease solicitors can advise landlords and tenants. For wider property matters, see our commercial property solicitors.
If you’re entering into a commercial property lease, our experienced commercial lease solicitors provide the clear, strategic advice you need. We guide clients through commercial lease negotiations, ensuring every lease agreement for commercial premises reflects fair and practical commercial lease terms. Our team advises on commercial lease rent reviews, short-term commercial leases, and commercial lease transfers, always with an eye on protecting your long-term interests. Should issues arise, we’re also experienced in managing the forfeiture of a commercial lease and resolving any commercial lease dispute swiftly and effectively.
Our Offices
Get in touch today and speak to one of our dedicated property dispute and commercial lease solicitors. We are here to help you every step of the way.
Our solicitors in the Brentford area also serve Chiswick and Hounslow. Our solicitors in the Ealing area cover Acton and Northfields, our solicitors in the Belgravia area cover Victoria and Westminster, our solicitors in the Pinner area cover Harrow, Northwood and Ruislip, our solicitors in the Richmond area cover Twickenham and Kew, and our solicitors in the Canterbury area cover east Kent. Our partner, Raminder Uberoi, can also offer a Notary Public service at any of our London offices.
