Category: Business Disputes

Most commercial leases will give the landlord the right to “re-enter” the property and bring the lease to an end in the event that rent is not paid, using a procedure known as forfeiture.

Because of the draconian nature of this form of self-help – meaning that even a small shortfall in the rent payable would in theory entitle the landlord to treat the lease as being at an end – tenants have the right to apply to the court for relief from forfeiture. The court will usually grant that relief, subject to the tenant making good the breach which gave rise to the forfeiture (which usually means clearing the arrears of rent) and paying the landlord’s legal costs of the proceedings.

However, relief from forfeiture is always discretionary, so it cannot be assumed that the court will simply “rubber stamp” and approve an application for relief. A recent case decided by the Court of Appeal has highlighted that, if a tenant is going to seek relief from forfeiture, they must do so without delay or run the risk that the court will not exercise that discretion.

Keshwala and another –v- Balsood and another concerned commercial premises (with living accommodation above). In June 2018, following a mistake in payment, the rent fell into arrears of £500. On 1^st September 2018, the landlord served the quarterly rent demand but made no mention of the £500 arrears. The rent was payable by 29nd September. On 13^th September, the freeholder forfeited by re-entry. At this point the tenants became aware of the rent shortfall. A payment of £500 was sent to the freeholder’s agent but was not accepted, and the tenants were told that the freeholder was dealing with the matter.

The tenants duly applied to the court for relief from forfeiture. It was refused at first instance by the circuit judge, on the basis that the application had not been made promptly, but then granted on appeal by the tenants to the High Court. The landlords then appealed in turn and the issue that the Court of Appeal had to decide was whether an application for relief from forfeiture made just within the six month longstop period from the date of forfeiture was brought with “reasonable promptitude”.

On the landlords’ appeal, the High Court had held that, given the statutory period of six months in the Common Law Procedure Act 1852 within which the application for relief had to be made, this formed the starting point for what was reasonable when deciding whether the court should exercise its equitable discretion whether to grant relief. In effect, this would mean that any application for relief brought within the six month period, should be treated as having been brought with “reasonable promptitude”.

The Court of Appeal allowed the landlords’ appeal and held that delay in making an application for relief could be a factor in whether to exercise that discretion, even if (as here) the application had been made within the statutory six month period.

One of the factors that appears to have weighed on that decision was that in this case the landlords had changed their position be granting a new lease to new tenants, on the basis that the previous lease had been brought to an end by forfeiture.

In his judgment, and explaining that the court has a discretion whether to grant relief from forfeiture, Lord Justice Nugee said:

“The discretion is to be exercised (in both the High Court and the County Court) in accordance with equitable principles, including the well-established principle that equity regards the right of re-entry as a security for the payment of the rent, and, other things being equal, the Court will ordinarily grant relief if the tenant pays all that is due in terms of rent and costs. If therefore all that has happened is that the landlord has taken possession and then done nothing with the premises, simply sitting back to see what happens, then the mere fact that the tenant has delayed is unlikely to be regarded as sufficient by itself to cause the Court to refuse relief.

But that does not mean that so long only as the tenant brings his application before the end of the 6 months, he will be treated as having acted with reasonable promptitude, or that his delay will always be regarded as immaterial. The longer that the tenant leaves it – and a fortiori if he does not have a good explanation for the delay, and fails to keep the landlord informed of his intention – the more likely it is that he will find that the Court will conclude that he has failed to act with reasonable promptitude, and the more likely it will be that intervening events will make it inequitable to grant relief. If the landlord, acting reasonably and not precipitately, has altered his position, it may be unjust to grant relief; as also it may be if the rights of third parties have intervened.”

In this case, the combination of the tenants having done nothing – not even informing the landlord of their intention to apply for relief from forfeiture – and the landlord having entered into a new lease with new tenants in light of that apparent inaction meant that the Court of Appeal was unwilling to exercise the discretion to grant relief and to reinstate the tenancy.

The moral of the story is clear – if you are a tenant and need to apply for relief from forfeiture, you must do so promptly, or at least have a good excuse as to why you didn’t act promptly!

If you have any questions or find yourself having to deal with a dispute, please get in touch with the MLP Law Dispute Resolution team by email to mark.turner@mlplaw.co.uk or 0161 926 9969 to see how we can help.

In the second blog from the Dispute Resolution team in our Beyond Covid series, we look at what a return to at least a degree of normality might mean for commercial and civil litigation.

As in so many other ways, the pandemic has significantly affected litigation. More specifically, it has affected people’s appetite for litigation. Perhaps unsurprisingly, with more pressing things to consider, a significant proportion of companies and individuals have over the past 12 months put disputes on the back burner while they deal with the impact of Covid.

A survey in April of 100 companies in the FTSE350 index by international accountants EY showed that almost two-thirds (63%) reported adopting a conciliatory approach to business disputes since the start of the pandemic.

However, as we edge our way out of lockdown, the majority (59%) now expect claims to be higher than normal in 2021, with 14% concerned that the expected upsurge in litigation could affect their ability to continue trading.

A recent survey of UK law firms by legal services provider LexisNexis noted that, at the end of 2020, the sector most affected by the pandemic was commercial litigation, where firms had seen on average a 30% reduction in fee income compared with 12 months previously. Whilst it’s unlikely that anyone other than litigation lawyers will shed any tears at that news, it does tend to bear out the conclusions of the EY survey, namely that people have been far less likely to become involved in disputes and to commence court proceedings over the past 12 months than normal.

So, as life returns to a modicum of normality, what is the Dispute Resolution team expecting to see over the next few months?

It is anticipated that parties with claims are likely to become more willing to start thinking about pursuing them and commencing formal action – both because less management time is being taken up dealing with Covid-related “firefighting” and can therefore be spent on dealing with those disputes which have taken a backseat over the past months, and also because there is likely to be less financial uncertainty, which for many will have been a factor in whether or not to instruct lawyers to deal with a dispute.

In relation to commercial disputes, we anticipate that there will be an increase in the number of clients either considering pursuing claims or facing claims by others. “The Great Pause” (as some have dubbed the pandemic and associated lockdowns) has undoubtedly interrupted countless commercial agreements. Project time frames have had to change, supply chains have been impacted and contractual obligations have been delayed and in some cases not fulfilled at all. As businesses attempt to get back on track, many will find new obstacles in their paths.

We also anticipate though that residual uncertainty as we emerge from lockdown may well mean that parties are still wary of becoming embroiled in potentially very lengthy and costly litigation and may well be more open to the opportunities provided by Alternative Dispute Resolution, such as mediation. ADR is a much more flexible process than court litigation – and generally much quicker and cheaper – so a willingness from parties to start focusing again on disputes may well not translate into a significant increase in the number of court claims issued.

We touched in our first Dispute Resolution blog in this series on the impact on landlords and tenants. The government announced last week that the restrictions on bailiff evictions will not be extended beyond the current end date of 31 May 2021, and also that from 1 June the Covid-extended notice periods required to be given by residential landlords to tenants will start to be reduced. Restrictions on commercial landlords’ right to forfeit leases where tenants vid-do not pay the rent are also due to be lifted later this year. Both of these factors are likely to see an increase in related litigation, although we think it is probably likely to be gradual over the coming year rather than a significant short term increase.

For those parties who do find themselves in court, the process itself may well be quite different to what they might have experienced prior to the pandemic. Video hearings have had to become the norm and the default option over the past year, despite being used very infrequently prior to Covid.

Recent comments from the senior judiciary have made clear that, while there will be a return to physical hearings for trials and certain other types of hearing that do not readily lend themselves to taking place virtually, procedural and case management hearings are very likely to continue to take place by way of video hearing. Coupled with suggestions over the past couple of years that online dispute resolution for smaller claims should become the norm, we’re likely to see fewer cases where the parties have to physically attend at court.

If you have any questions or find yourself having to deal with a dispute, please get in touch with the MLP Law Dispute Resolution team by email to mark.turner@mlplaw.co.uk or 0161 926 9969 to see how we can help.

Most people who work in the construction sector are likely to be aware of adjudication.

A recent decision in the Technology and Construction Court (which is a specialist division of the High Court) highlights the need to make sure that, if you’re going to use it, you need to get the basics right or the whole process runs the risk of being declared invalid.

What is adjudication?

Introduced by the Housing Grants, Construction and Regeneration Act 1996, it is a statutory scheme designed to settle disputes quickly.

In brief, adjudication:

• applies to parties to a “construction contract” (what is taken in by construction is interpreted quite widely), who cannot contract out of it;
• is intended to produce a binding decision within 28 days (although the parties can agree to extend this period);
• is frequently described as a “pay first, argue later” mechanism for resolving disputes;
• was introduced to try to protect cash-flow during construction, rather than requiring parties to go through expensive litigation which may take 18-24 months to resolve, by which time the dispute may well have put the aggrieved party out of business.

The detailed rules about how adjudications are to be carried out are set out in the Scheme for Construction Contracts (England and Wales) Regulations 1998. While the parties can agree between themselves how adjudications should be dealt with, they cannot exclude it completely and, if a contract makes no provision, then the Scheme rules apply by default.

So, adjudication as a means of dispute resolution has been around for almost 25 years now. You could be forgiven for thinking that parties to adjudication would be clear by now about how to go about referring a dispute to adjudication.

The decision in Land End Developments Construction Limited v Kingstone Civil Engineering Limited shows that it’s still easy to come a cropper if you’re not careful in following the Scheme rules to the letter.

What was the issue in this case?

The contractor, Kingstone, had issued an interim payment application for around £350,000 to the employer, Land End Developments. The contract required Land End Developments to serve a pay less notice within a specified period if it disagreed with the amount sought, and if it did not do so it was deemed to accept that amount and could not then challenge it.

Land End Developments did not serve a pay less notice within the required period, and nor did it pay the £350,000 Kingstone had applied for, and so Kingstone gave the notice to refer the dispute to adjudication.

The adjudication proceeded and the adjudicator found in Kingstone’s favor, determining that Land End Developments should pay the amount set out in the interim application. Land End Developments still did not pay it and instead issued court proceedings challenging the validity of the adjudication decision.

Specifically, it did so (among other grounds) on the basis that the request to appoint the adjudicator had been made before Kingstone had served formal notice on Land End Developments of its intention to adjudicate.

This is relevant because the Scheme specifically provides that notice to adjudicate MUST have been served BEFORE any request is made to an adjudicator-nominating body to appoint an adjudicator to determine the dispute.

The judge in the Technology & Construction Court agreed with Land End Developments and held that the adjudicator’s decision was invalid and therefore unenforceable because the request to appoint him had been made before notice to adjudicate had been served – even though evidence showed the request to appoint him had been made just 18 minutes before the notice to adjudicate had been served. The adjudicator, therefore, had no jurisdiction to determine the dispute.

It is not uncommon for parties to make procedural and jurisdictional challenges during adjudication and to reserve their position. Typically, applications to the High Court to enforce adjudication decisions based on jurisdictional points such as this are challenged on the basis that the opposing party has waived any alleged procedural failure and is therefore stuck with it. However, the judge in this case went further to say that Land End Developments could not have waived this error even if it wished to do so. This was not just a procedural defect in the adjudicator’s appointment, but rather it was so fundamental that he “was not appointed to act in the adjudication at all” and so the process was a nullity.

So what should we take from this case?

There is nothing revolutionary in this case in terms of the legal principles but it is a stark reminder that some requirements within the Scheme are so fundamental to an adjudication being valid, and an example of how easy it is to fall foul of the most basic of the Scheme’s procedural requirements.

If you would like more information or if you have any questions or queries relating to the above, please contact our Dispute Resolution team on Mark Turner from our Dispute Resolution team on 0161 926 1534 or markt@mlplaw.co.uk to receive expert legal advice for your business.

Throughout the pandemic, restrictions have been imposed on landlords’ ability to commence possession proceedings and evict tenants. This has applied to both the section 21 “no fault” route, which in normal times simply requires a landlord to give two months’ notice to quit without having to provide any reason, and also to the section 8 route, which is based on a breach of the tenancy by the tenant – usually non-payment of rent.

Given the further lockdown recently ordered by the government, it was no surprise that the restrictions on evictions – which would otherwise have expired on 11^th January 2021 – have recently been extended.

A Statutory Instrument laid before Parliament on Friday 8^th January, the Public Health (Coronavirus) (Protection from Eviction) (England) Regulations 2021, came into force on 11^th January and has extended the existing restrictions until 21^st February 2021. This means that even where a possession order may already have been granted, court bailiffs and enforcement officers will not actually be able to attend at the premises to enforce a warrant of possession and evict the tenant.

Interestingly, however, at least one aspect of the restrictions has been relaxed. The Regulations do provide exceptions as to when evictions can proceed, and the current Regulations state that an eviction can take place where the Court is satisfied that “the case involves substantial rent arrears”

‘Substantial rent arrears’ are defined as

“a case involves substantial rent arrears if the amount of unpaid rent arrears outstanding is at least an amount equivalent to 6 months’ rent.”

This is a change from the preceding Regulations in two ways:

1. the arrears previously had to be equivalent to at least 9 months’ rent rather than 6; and
2. there is now no stipulation that arrears which arose after 23^rd March 2020 (i.e. which arose because of pandemic-related issues) cannot be taken in to account.

The previous Regulations in effect prevented the court from taking into account any arrears which had arisen after the start of the first lockdown, in order to safeguard tenants who had found themselves adversely financially affected, for instance by being furloughed or losing their job.

That protection has been removed and it does now appear that a court could find that “substantial rent arrears” exist, so as to satisfy the exception and allow eviction to proceed, even where the arrears have all arisen after the onset of the pandemic.

It remains to be seen how willing judges are to use these powers in the face of rising numbers of cases of Covid 19 and against a background of a general tightening (rather than relaxation) of restrictions on movement and association.

It seems likely that the restrictions will be extended further beyond 21^st February, but we shall have to wait and see whether the protection afforded to tenants is further diluted.

Change to the “How to Rent” booklet

Landlords will (or at least should!) be aware that they are required to provide certain mandatory information to tenants before the tenant moves into a property let on an assured shorthold tenancy. One of those items is a copy of the “How to Rent” booklet published by the Ministry of Housing Communities and Local Government.

The booklet must be served on the tenant before a section 21 notice can be served for all new and replacement tenancies entered into since 1st October 2015. If the booklet was served previously served, there is no requirement to re-serve it at the start of each ‘replacement’ tenancy unless it has in the meantime been updated.

Landlords should therefore be aware that the latest periodic revision to the “How to Rent” booklet was published on 10^th December 2020, and that if entering into a new assured shorthold tenancy, or a “replacement tenancy (i.e. one which is between the same parties and in respect of the same property after the expiry of an earlier fixed term AST), they must serve a copy of the new version of the booklet on the tenant.

The actual changes to the booklet are fairly minor – incorporating reference to new electricity safety regulations – but the important point for all landlords to consider is whether they need to serve a copy on their tenant before giving notice to quit.

Even if it wasn’t served before the tenant moved in, this can be rectified by serving it afterwards – the only requirement is that a copy must have been provided before any section 21 notice is served.

If you have any landlord and tenant issues that you require assistance with, please do get in touch – by telephone on 0161 926 9969 or by email to markt@mlplaw.co.uk.

On Friday 15^th January, the Supreme Court gave its judgment in the case on whether insurers are obliged to pay claims in relation to loss of profit caused by Covid-19 brought under business insurance policies.

The test case – which was the first under the courts’ Financial Markets Test Case scheme – was brought on policyholders’ behalf by the insurers’ regulator, the Financial Conduct Authority (FCA). It followed widespread concern over lack of clarity and certainty for businesses seeking to recover losses incurred as a result of the pandemic.

Judgment was given in the original case in September last year, largely in policyholders’ favour, but both the FCA and certain of the insurers appealed that decision. Unusually, as a result of the importance and urgency of the issues involved, those appeals were ‘leapfrogged’ to the Supreme Court, bypassing the Court of Appeal.

In its judgment, the Supreme Court substantially allowed the FCA’s appeal and dismissed the insurers’ appeals. This paves the way for thousands of affected businesses struggling to survive through the pandemic to have their claims paid.

Inevitably, the court’s judgment is complex and runs to more than 100 pages. However, Lord Briggs – one of the Supreme Court justices who heard the case – provided this succinct summary of the outcome:

“all of the insuring clauses which are in issue on the appeal to this court…. will provide cover for business interruption caused by the Covid-19 pandemic, and that the trends clauses will not cut it down in the calculation of the amounts payable.”

In the judgment, the court determined how four types of clauses commonly found in business interruption policies should properly be interpreted.  These are:

• ‘Disease clauses’ – clauses which generally provide cover for business interruption losses resulting from the occurrence of a notifiable disease, or at a specified distance of the business premises;
• ‘Prevention of access clauses’ – clauses which generally provide cover resulting from public authority intervention preventing or hindering access to or use of the business premises;
• ‘Hybrid clauses’ – clauses which combine both of the above clauses; and
• ‘Trends clauses’ – clauses which generally provide for business interruption loss to be quantified by reference to how the business would have performed had the insured risk not occurred.

The Supreme Court’s judgment on how widely these clauses should be interpreted in relation to Covid-19 is favourable to policyholders, meaning that the range of circumstances in which insurers must pay claims will be considerably wider than insurers had previously maintained.

It should be noted that business interruption claims still require the policyholder to show that it has suffered a reduction in profits as a consequence of Covid-19. If profit levels have been maintained, there will be no loss that can be recovered.

The FCA has said that it will produce a Q&A document for policyholders and will move to confirm its draft guidance on these claims before the end of the month.

It is also reasonable to assume that, given the general tenor of the Supreme Court’s decision, the starting point in any complaint made by a policyholder about non-payment under a business interruption policy will be that it is for the insurer to show why the claim should not be paid and that the onus is very firmly on it to justify its refusal to do so.

If you have any questions or queries in relation to this blog, please do get in touch – by telephone on 0161 926 9969 or by email to markt@mlplaw.co.uk.

In the latest blog from our Dispute Resolution team, we look at whether taking part in some form of alternative dispute resolution might become compulsory before court proceedings can be issued.

Alternative Dispute Resolution (ADR) has been around in a number of forms – the most common being mediation – for upwards of 30 years now. Designed to try to keep cases out of court, all parties in litigation are under an obligation to positively considered whether ADR might assist and, if they believe that it won’t, they can be required to explain to the court why they think that.

As things stand, while the obligation to consider ADR is mandatory, courts cannot force parties to do so if they choose not to. They do have the power to make costs orders against parties who they think have unreasonably refused to mediate, but there is no actual power to compel the parties to engage in some form of ADR.

The Civil Justice Council, headed by Court of Appeal judge Lady Justice Asplin, recently published a report in which it concluded that mandatory ADR is compatible with Article 6 of the European Human Rights Convention (which relates to the right to a fair trial) and is therefore lawful.

This followed a request from the most senior civil judge, the Master of the Rolls Sir Geoffrey Vos, to consider whether ADR could (and indeed should) be made compulsory amidst concerns that too few parties to disputes were agreeing to participate in it voluntarily.

Commenting on the report, the Master of Rolls said: “As I have said before, ADR should no longer be viewed as “alternative” but as an integral part of the dispute resolution process; that process should focus on “resolution” rather than “dispute”. This report opens the door to a significant shift towards earlier resolution.”

The CJC report does expressly acknowledge that further work is necessary in order to determine the types of claim and the situations in which compulsory ADR would be appropriate and most effective for all concerned, so it’s unlikely that anything will change in the near future. It also stops short of a positive recommendation that ADR should become compulsory.

However, the general direction of travel in thinking over the past few years has been towards greater use of online resolution of claims of modest value (such as those which currently fall into the small claims track, of £10,000 or less) and to keeping more cases out of court to free up judicial resources.

Against that backdrop, it seems likely that some form of compulsory ADR will be introduced in the medium term – but the devil will inevitably be in the detail of what types and value of claims it will apply to.

If you have any questions or find yourself having to deal with a dispute, please get in touch with the MLP Law Dispute Resolution team by email to markt@mlplaw.co.uk or 0161 926 9969 to see how we can help.

The pandemic has had a significant effect on the commercial property market in a number of ways, not least in that many tenants have found themselves unable to pay the rent.

In more normal times, commercial landlords’ have two usual self-help remedies in order to try to recover rent from non-paying tenants:

(a)        Forfeiture – which is where the landlord elects to “re-enter” the property and bring the lease to an end; and

(b)       Commercial Rent Arrears Recovery, usually abbreviated to CRAR – which is a statutory process allowing landlords to recover rent arrears by instructing a bailiff to attend at the premises and take control of the tenant’s goods so that they can be sold to settle outstanding rent.

The government legislated last year to essentially withdraw those rights and so protect tenants who suddenly found that they were unable to pay their rent.

Hopes that those restrictions would be lifted, or at least eased, were dashed when the government recently announced that the restrictions on forfeiture and CRAR would be extended to 25^th March 2022. The stated aim was to allow the sectors which are unable to open have enough time to come to an agreement with their landlord without the threat of eviction.

The government also announced that it proposed to legislate to provide for a “binding arbitration process” where landlords and tenants are unable to reach agreement about rent arrears. There are no further details at present about what form that process may take, what powers arbitrators will have nor how long it is likely to take.

So, given that self-help is out, is there anything else that commercial landlords can do to try to recover unpaid rent?

The answer to that is a qualified “yes” – but it’s worth bearing in mind that if a tenant is genuinely unable to pay, there may not be much to be gained in incurring the cost of going through the legal process to try to extract payment.

Firstly, landlords remain free to issue court proceedings for breach of contract and to obtain judgment against the tenant. This can be enforced in a number of ways, the most usual of which involves having a county court bailiff or High Court enforcement officer attend at the property to seize goods to sell, which is similar to CRAR.

Secondly, where the tenant is a company, consider whether any of the directors of  the company provided personal guarantees in respect of the its obligations under the lease. If they did, they may well have personal assets which can be enforced against, even if the company does not. They are probably also likely to be much less keen on having enforcement agents come to their home rather than to the business premises!

Thirdly, insolvency proceedings remain a possibility – although in practice presenting a bankruptcy petition or winding up petition is subject to similar restrictions as those on self-help, in that it is currently not possible to do so unless the creditor can satisfy the court that the debtor’s inability to pay does not arise from Covid-related financial difficulties.

Unless the rent arrears stretch back beyond the start of the pandemic, this may well be difficult. Those restrictions on insolvency proceedings have recently been extended by a further 3 months to 30^th September 2021 (and may yet be further extended beyond that).

Finally, obtaining payment of something is better than nothing, so it’s always open to landlords to agree to accept reduced payments for now, without prejudicing their right to pursue a claim for the remainder of the arrears in due course.

Although they are limited, commercial landlords do potentially still have routes to try to obtain payment, though there will need to be careful consideration of whether the costs involved in doing so outweigh the likelihood of being able to obtain payment.

If you are a commercial landlord with a tenant who isn’t paying the rent, please get in touch – 0161 926 9969 or markt@mlplaw.co.uk – and we will be happy to advise on your potential options.