Rent review issue

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  • rentreviewspecialist
    replied
    The more you tell us about the tenant's conduct,, the more it's obvious, at least to me, that the tenant's only reason for objecting to how you have dealt with the review is to wriggle out of its responsibilities under the lease. Presupposing your RPI calculation correct, the tenant's ability to afford the increase is immaterial.

    "Although, our solicitor is concerned we may have waived this right by communicating with the tenant on some documents related to the service charge account after we were aware they had not paid the rent."

    I am currently involved in a matter where my landlord-client's solicitors advised my client to have no communication with the tenant whatsoever in case such communication could be construed as waiver. The client heeded the advice. Not certain but I think the advice stems from where the lease contain a right by the landlord to terminate the lease by forfeiture if the tenant breaches its obligations, once the right has arisen, if the landlord (with knowledge of the tenant's breach) acts in such a way that it unequivocally treats the lease as continuing, the landlord will waive - and so lose - its right of forfeiture. Saravananthan Thirunavukkrasu v Baljit Singh Brar, Jinder Kaur Brar [2018]

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    Statutory demand procedure is outside my knowledge so I recommend you consult your solicitor on the best course of action. Whether you want to incur extra and possibly non-recoverable costs and embark upon what could be lengthy proceedings is up to you.

    (From my law library: " Service of a statutory demand is a very direct method of collection but it should be used only if there is no possible dispute as to liability.

    If there is any real dispute as to liability then:

    • in the case of an individual debtor "the debtor" can apply to the court (as stated in the statutory demand) for the statutory demand to be set aside and/or to restrain presentation of a bankmptcy petition;

    • in the case of a corporate debtor there is no statutory procedure for setting aside the statutory demand and the debtor must apply to the Companies Court to restrain presentation of any winding-up petition.

    If such an application is successful, the landlord will be ordered to pay the tenant's legal costs (to be assessed if not agreed) and will be forced to collect the sums due by issuing court proceedings.

    If the statutory demand procedure is followed in an unsuitable case, recovery will be delayed and unnecessary costs will be incurred.

    The test for setting aside a statutory demand in bankruptcy is set out in Insolvency Rules 2016 r.10.5. A creditor cannot serve a statutory demand in respect of a debt which is fully secured; only in respect of that part of the debt not covered by the security. If the landlord holds a rent deposit as security for the rent and the deposit exceeds the arrears, then if the landlord serves a statutory demand the tenant could apply to set it aside on the ground that the landlord is a secured creditor.

    If set aside, the landlord would have to pay the tenant's costs. Therefore, depending on the wording of the rent deposit deed, it may be preferable to draw down on the rent deposit and then make an immediate demand for the rent deposit to be "topped up" by the tenant. If the tenant fails to, a statutory demand can then be served for the sum required to replenish the deposit." )


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  • desamax
    replied
    If they have assets get your solicitor on it straight away. A lease is a legal contract.

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  • Charlie16
    replied
    Hi




    Thanks to all those who previously posted. However, in the meantime the saga continues. In the period since the last reply the tenant has not paid any further rent and is now in the process of moving out and setting up a similar business elsewhere. They also had a surveyor write to us making some spurious claims regarding the building and also some factually incorrect statements regarding the rent review. The tenant did not pay the dec 25th rent. However, as we were concerned that perhaps we had waived our right to commence forfeiture we did not do anything. They have also now not paid the march 25th rent. Since they did not pay this we have had zero dealings with them. It is now our intention to peacefully re-enter the building and change the locks and forfeit the lease. My question is regarding the best way to try and recover the outstanding rent from this limited company. When we signed the lease, as the company was new we kindly agreed to hold only a £5k deposit. The rent per quarter is approx £12k. Meaning that if we forefeit next week they owe us approx £15k. We tried to negotiate a surrender of the lease with the tenant however they have rebuffed any form of negotiation.




    My thought now is to forefeit the lease next week and commence a winding up petition against the ltd company due to their underhand behaviour. Due to the nature of the tenants business where they licence stall holders to rent a space from themselves in the building the rent from us they have clearly still been collecting money from their traders whilst paying us no rent for 4 months. It also means their only real creditor is the landlord. My feeling is they have then no doubt taken this money out of the business rather than pay their creditor and therefore they may likely have breached the rules of running a ltd company. I don’t expect to see much money back but because of the tenants underhand behaviour I’m not prepared to just let them walk away from their responsibilities without any hassle or cost. My understanding is that the appointed liquidator will investigate such matters. I appreciate that I will have to pay a deposit of £1800 to commence the winding up which i may not see again plus legal fees to start the process. This is in addition to the loss of rent plus the professional costs I have already incurred.




    Before moving forward I have a few questions:







    1) As we will forfeit the lease do we need to deduct the deposit from the amount claimed? I.e amount owed £15k - £5k deposit. Claim amount should = £10k?




    2) Do we need to issue a statutory demand prior to commencing the winding up petition. My understanding is that this would normally be the case. However, non payment of rent is surely clear enough reason to commence a winding up petition without the need for a statutory demand.




    3)should we commence winding up prior to forfeiting the lease?




    4)The tenant claims that because we increased the rent to a level that they could not afford and because they dispute our entitlement to do this that they will sue us for damages for the loss of their business.




    Appreciate thoughts on this. I think in future I will not offer a new company such generous deposit terms as clearly this has allowed them to walk away with minimal cost to themselves.




    thanks

    Charlie

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  • Lawcruncher
    replied
    Originally posted by Charlie16 View Post
    My solicitor responded and he agrees that appointment of surveyor is what should happen if no agreement can be found.
    What does he mean by that? Is he saying that if the tenant does not like the result obtained by the formula or considers an incorrect calculation has been made that the tenant can call in a third party? That is not what an RPI clause should do. What it should do is obviate the need for negotiation and leave the new rent in no doubt so long as the RPI has not been messed about with. Either your solicitor has got it right or he has not. If he has got it right he should not be telling you to negotiate because the amount of the new rent is unarguable. Instead of negotiating he should be putting the tenant right.

    He may well be right about you having unintentionally waived the right to forfeit. It depends on exactly what you said. The basic principle is that the right to forfeit is lost if you do anything which indicates an intention to maintain the tenancy.

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  • Charlie16
    replied
    My solicitor responded and he agrees that appointment of surveyor is what should happen if no agreement can be found. Funnily enough he hasn’t said the whole clause is badly drafted but then I never expected them to do so as they drew it up. Next steps are to make the tenant an offer to settle and continue as before. If they don’t accept this offer within 7 day we will likely forfeit the lease. Although, our solicitor is concerned we may have waived this right by communicating with the tenant on some documents related to the service charge account after we were aware they had not paid the rent. Hope this is not the case. It seems crazy if it were the case.

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  • Lawcruncher
    replied
    A properly drafted RPI rent increase clause should have two elements. One is the main part which sets out when the rent is to go up and how the increase is to be calculated with reference to the RPI; it should also provide for what happens if over the relevant period the RPI goes down. The other is the subsidiary part which sets out what is to happen if the RPI is rebased, its constituents altered or it is abolished. Any provision which allows reference to a third party in the event of dispute should be restricted to the subsidiary part only.

    One of the main attractions of RPI increases is that it avoids negotiation and any delay in the increase taking effect. It avoids the awkward situation which can arise, particularly with low value premises, where the tenant declines to negotiate knowing the landlord can only secure an increase by bringing in a third party. If there is any dispute as to the correctness of the calculation, that needs to be hammered out between the parties. Assuming the clause is properly drafted and the subsidiary parts do not kick in, there can only ever be one answer so you do not need an expert to weigh anything up and come to a conclusion.

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  • flyingfreehold
    replied
    although one might think RPI linked leases give no room for maneouvre/negotiation; my experience is not so. Admittedly its rare but there was an occasion where RPI actually fell and this does result in possible differences in how the RPI linkage is calculated; which is why I would encourage making an offer just a touch below what it should actually be. If its agreed everyone walks away happy.

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  • Lawcruncher
    replied
    A Calderbank offer is a special type of offer. It allows a party to make an offer which is without prejudice except as to costs. That is you can make the offer and then withdraw it. If you do withdraw it, it cannot be produced in court as evidence of your offer. However, if the other party held out for more and failed to get it you can, when arguing costs, point it out and produce the letter and ask for your costs after the offer was made to be paid.

    A Calderbank letter may be useful where the amount in dispute is unfixed - for example damages for personal injury or, of course, the rent to be reviewed under a lease. It is of no use where the sum is certain. A sum is not only certain if it is expressed in a form such as "£10,000", but also if it is expressed in a form which enables it to be detemined by a calculation the parts of which are certain when the calculation is to be made.

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  • rentreviewspecialist
    replied
    "I do know though that a Calderbank letter needs to comply with certain requirements and that one of them is that it contains a genuine compromise. Compromise is not applicable here…"

    A Calderbank is a without prejudice offer to compromise on the issue of costs. Compromise is applicable here because if the third party expert were asked to determine the rent review per the formula for its calculation then the expert's costs would have to be payable. Assuming the landlord would want the tenant to bear all costs it would make sense to make a Calderbank offer accordingly.

    A Calderbank offer comprises two stages, the second of which only applies if the conditions in the first are not met.

    Firstly that the rent offered is £x and if accepted by the date/time specified then that offer would be the rent and each party would be responsible for half of any third party costs incurred to that date. If not accepted by the specified date then the second stage would apply, namely that after the rent has been determined by the third party then the offer could be disclosed on the matter of costs but not otherwise.

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  • Lawcruncher
    replied
    It does not though generally pay to give in to unreasonable requests. Give them an inch...

    By agreeing an increase lower than provided for you risk setting a precedent.

    Reasonableness does not really come into it. If you have a lease which provides for a rent of £10,000 p.a. during the first three years and £11,000 during the last three years you are not being unreasonable in requiring £11,000 to be paid during the last three years. The principle is the same here - it is just that the amount of the increase is not known at the outset, just how it is to be arrived at. An RPI increase is not unreasonable and is in any event what the parties agreed. It is something of a risk for both parties. If rents go up generally by more than inflation the landlord looses out. If rents generally go down or go up by less than inflation the tenant loses out. That is why it is not generally recommended to go fo RPI increases unless the term is seven years or less or the lease contains a provision to rebase the rent to a market rent at intervals less frequent that the RPI increases.

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  • flyingfreehold
    replied
    This saga may end up in Court, with the tenant changing its mind and wanting to stay. Therefore I recommend you extract the office rpi figures and set out your calculations in the form of a letter, offering to settle at a few pounds less than your arithmetical calcs. Then if you do end up in Court the Judge will see that you have been reasonable. If you can rescue the buisness relationship so much the better. Invariably, almost, a change of tenant involves some work and costs. Try to work things out if you can, it pays in the end to be very reasonable; word gets round

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  • Lawcruncher
    replied
    If going for an RPI lease for your next tenant suggest to your solicitor he simplifies the RPI clauses. Starting from scratch with a precedent from a book would not be a bad idea.

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  • Charlie16
    replied
    Yes i agree on the Calderbank. We see no reason to compromise. If the tenant had genuinely tried to negotiate we would have likely delayed the increase for a year as we were conscious that the tenants business was struggling. However, what we got was acusations of criminality and were told we were just greedy. As it stands now the tenant has not paid any of the rent due on December 25th for the current quarter. He has also told us he has no intention of paying anymore rent and that he will remain in the property until February and we can offset the 2 month deposit against this period in lieu of rent. It will be interesting to see what our solicitor says. I assume they will suggest that due to the complete breakdown in relations we should forfeit the lease and peaceably re-enter the property and re-let to another tenant. Thanks for all the advice.

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  • Lawcruncher
    replied
    Originally posted by Charlie16 View Post
    In the lease it specifies the surveyor as expert.

    Appreciate everyone’s comments on this matter. I am waiting to hear from my solicitor. Although it is same firm that drew up the lease so I doubt they will agree it is badly written. To me it looks like the whole clause was copied from a lease with a rent review based on market rate review. As such the other relevant clauses should have been cleaned up to reflect the change to RPI. However, despite the fact that the lease may well allow a surveyor to review. My expectation would be that he should think the increase is entirely fair and he should award all costs to be paid by the tenant as it is a spurious review.
    I think your assessment of the drafting is pretty much spot on. However, from what I have seen, I would not say that it is fatal to your case, rather that it confuses the issue somewhat.

    Whilst loosely any change in rent under a lease may be referred to as a "review" you do not really have a review here as the amount of the rent is not being reconsidered, but increased in accordance with a formula the ingredients of which are not subject to assessment or negotiation.

    I was never a litigator and am no expert on the finer points of Calderbank letters. I do know though that a Calderbank letter needs to comply with certain requirements and that one of them is that it contains a genuine compromise. Compromise is not applicable here because what you want is what the lease says you get. If you want what the lease says you get you cannot send a Calderbank letter because you are not offering a compromise. What you can do is to suggest to the tenant that the position is clear and that if it goes to court you will ask for your costs to be paid on an indemnity basis as his defence will be wholly without merit - but really such letters ought to be left to litigators.

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  • Charlie16
    replied
    In the lease it specifies the surveyor as expert.

    Appreciate everyone’s comments on this matter. I am waiting to hear from my solicitor. Although it is same firm that drew up the lease so I doubt they will agree it is badly written. To me it looks like the whole clause was copied from a lease with a rent review based on market rate review. As such the other relevant clauses should have been cleaned up to reflect the change to RPI. However, despite the fact that the lease may well allow a surveyor to review. My expectation would be that he should think the increase is entirely fair and he should award all costs to be paid by the tenant as it is a spurious review.

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