Present & Post Covid-19 Rent Review disputes & ADR

Authors: Tariq MahmoodArran Dowling-Hussey
In: Article Published: Thursday 09 April 2020

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At the best of times there are disputes between commercial landlords and retailers in England and Wales. Over the last month the effect of the Covid 19 public health crisis has laid waste to the high street. Most shops cannot now open, and the ones that can must implement stringent social distancing measures. All pubs, restaurants, cinemas and so on are closed. Where there is no footfall there is no spending by customers and no income generated to pay rent. No one at the time of writing knows exactly when this position will change. The present scenario presents an unattractive vista for commercial landlords. Nothing operates in a vacuum; the rent these landlords were expecting will be income for investors who may own a small retail building and have no other source of income. Large pension funds, who often invest in the high street, will continue to have the normal financial obligations to the members of their fund. Some landlords will be reliant on their commercial rental income to service a loan secured on the building they rent out. 

Emergency legislation passed at the end of March 2020 in response to the crisis bars landlords from evicting those who don’t pay commercial rent for the next 3 months. Even if that were otherwise the adverse economic impact of the ongoing crisis means it is unlikely that new tenants could be easily found, if at all, to replace anyone who left a premises. Moreover, anyone seen to act in present times in a ‘sharp’ or uncaring manner may attract public opprobrium. The British Prime Minister Boris Johnson pointedly remarked on March 29, 2020 that ‘there really is such a thing as society.’ Everyone has been encouraged to ‘rally around.’ Johnson’s remarks were not without context. Whilst his late predecessor. Margaret Thatcher, complained that individual words in her 1987 interview with Women’s Own had been taken out of a wider more sympathetic quote she is, nevertheless, much associated with the contention ‘that there is no such thing as society.’

Be that as it may and as admirable as it is that we are told the world post Covid 19 will function differently and by inference in a more caring manner, landlords will at some point want a return to normality. Those who own a large estate of premises were requested in the middle of last month by well-known chains to reduce rent by 50% and/or to implement rent free periods.[1] After ‘doing their bit’ many landlords will want to, in as far as is possible, go back to the position they were in as of January or February, 2020.

It seems unlikely, for now, that the cascade of government cash, aimed at managing the enormous impact of the crisis on the wider economy, will be directed to commercial landlords. The most obvious amelioration of their position, at present, is that they can usually take a payment break on loans they may have on the premises they are renting out. When we come out of this period it seems that there will be inevitable conflict between landlords and tenants with the former wanting to go back to how it was, and the latter wanting a continuation of more sympathetic conditions.

It is clear that in these unprecedented times, landlords will need to make important choices after the Government temporary ban as to whether to forfeit leases for non-payment of rent.  The Government has introduced a 12 -month rates holiday for those businesses in the retail, hospitality, leisure and nursery industries and a grant funding scheme for small businesses with a rateable value of less than £51,000.  This relief will allow small businesses to continue to operate, however tenants may exert pressure to ask landlords to give them a further 9-month relief to match the government’s 12-month rate relief. It will be testing times for all.

It should of course be noted and recognised that some commercial tenants will be pushed into administration. In such circumstances the status of a commercial lease changes and if the landlord does not wish to terminate the lease, they may have to offer a noticeable reduction in what had been the prevailing rent. On April 6, 2020 it was reported that the Debenhams department store chain had announced it would file for administration.[2]The effect of the Covid-19 crisis on some stores has been to act as a ‘straw that broke the camel’s back.’ At the time Debenhams filed for administration, Debenhams was said to have ‘more than 140 stores.[3]’ Earlier on in 2020 when last in administration around 20 stores were closed. 

Whilst there are well established rent review arbitration processes to deal with disputes it could also be that a mediation will provide a time and cost-effective way of resolving such disputes. Where there is not a scheduled rent review and there is a necessity for a landlord and tenant to deal with some of the issues discussed in this article, the parties may be free to choose which dispute resolution method they use. Mediation is often quicker and less adversarial than litigation or arbitration. Success rates for mediation are said to be between 60-85%[4]. However, it should be noted that some disputes, due to their nature, will not lend themselves to being dealt with by a mediator.

Mediation is where an independent third party helps you and the otherside (the individual/entity you’re in a dispute with) reach a mutually acceptable outcome. The mediator will add formal structure to the communication you and the otherside have with the aim of helping you to reach a voluntary agreement. The mediator cannot impose a solution and will not act as a decision maker so as to adjudicate on legal issues between the parties.

Members of Arbitrators@33BedfordRow have experience, both as party representative and arbitrator/mediator, of a wide range of disputes, including but not limited to, commercial landlords & tenant disputes. The authors have, amongst other things, acted in relation to rent review disputes at a 150,000 m2 city centre shopping centre. For enqueries contact m.byrne@33bedfordrow.co.uk 

DR TARIQ MAHMOOD AND ARRAN DOWLING-HUSSEY © 2020

BARRISTER

33 BEDFORD ROW

Arran Dowling-Hussey is a Barrister, Arbitrator and Mediator working from 33 Bedford Row, London; he can be contacted at adhussey@33b3edfordrow.co.uk

Dr. Tariq Mahmood is a Barrister, Arbitrator and Mediator practising from 33 Bedford Row where he is Head of Arbitration & Alternative Dispute Resolution. He can be contacted at t.mahmood@33bedfordrow.co.uk

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.

The members of Arbitrators@33BedfordRow have a wide range of multi-jurisdictional experience and can advise clients of how to most effectively use ADR. We look at each case on a case by case basis and do not champion any one process repeatedly but rather try and match our clients needs to the most suitable ADR tool available. We offer a range of cost-effective fees for disputes under £25,000 such that our members will sit as an ADR neutral and issue a decision on an expedited basis for a fixed fee. If you have any queries regarding the above or any ADR queries during this difficult time, please do not hesitate to contact Mark Byrne on 0207 242 6476 or m.byrne@33bedfordrow.co.uk

[1] The Guardian (accessed on April 8, 2020)

[2] The Guardian (accessed on April 8, 2020)

[3] Supra, note 2. 

[4] Statistics quoted for the success rate of mediations obviously varies from year to year. In general, it is usual to see success rates of between 60-85% quoted where the starting point is the participants entered the mediation process on a ‘bona fide’ basis. See inter alia The Eighth Mediation Audit (2018) (accessed on April 8, 2020)