SANCTIONS: Tenant must pay rent even though landlord is designated

The case Chanana v Khan [2025] EWHC 1472 (Ch) involved a dispute over unpaid rent where the landlord, Anzhelika Khan, had become a designated person under the Russia (Sanctions) (EU Exit) Regulations 2019.

The tenant, Karan Chanana, argued that paying rent would breach sanctions laws.

Key Points from the Judgment:

• Background: The dispute concerned a three-year tenancy for a property in Belgravia, London. The tenant failed to pay rent from October 2022 to April 2024, amounting to approximately £851,000, including interest.
• Sanctions Argument: The landlord was designated under UK sanctions in April 2022, and the tenant claimed that paying rent would be illegal under Regulations 12 and 13, which prohibit making funds available to a designated person.
• Court's Decision:
• The court held that the lease was entered into before the landlord’s designation, so the rent obligation was a pre-existing liability.
• This fell within an exception under the sanction’s regulations, meaning the payment was not prohibited.
• The tenant’s reliance on Section 44 of the Sanctions and Anti-Money Laundering Act 2018 (SAMLA)—which provides a defence for those who reasonably believe they are prohibited from making a payment—was rejected.
• The tenant’s solicitors had already held a substantial portion of the rent in escrow, pending OFSI or court approval, which further weakened the tenant’s argument.

This case clarifies that:

• Sanctions do not automatically void pre-existing contractual obligations like rent payments; and
• Courts will consider the timing and nature of the obligation.

Here’s a summary of the legal implications for landlords and tenants in situations where sanctions affect one of the parties, based on the Chanana v Khan [2025] EWHC 1472 decision:

1. Pre-Existing Obligations Remain Valid

• If a lease or contract was entered into before a party became a designated person under sanctions law, the obligations (like rent payments) are not automatically void.
• Courts may interpret such obligations as falling within exemptions under the sanctions regulations.

2. Sanctions Do Not Automatically Excuse Non-Payment

• Tenants cannot simply stop paying rent because the landlord is sanctioned.
• They must seek a license from OFSI (Office of Financial Sanctions Implementation) or obtain court approval to ensure compliance.

3. Legal Advice and Escrow Arrangements Matter

• If a tenant is unsure about the legality of payment, placing funds in escrow and seeking legal or regulatory guidance is a prudent step.
• However, this does not guarantee protection if the court finds the payment was not actually prohibited.

4. Section 44 SAMLA Defence is Narrow

• The defence under Section 44 of the Sanctions and Anti-Money Laundering Act 2018 (which protects those who reasonably believe they are prohibited from making a payment) is not easily accepted.
• Courts will assess whether the belief was genuinely reasonable and based on proper legal interpretation.

5. Implications for Landlords

• Sanctioned landlords may face delays or complications in receiving rent.
• They should consider applying for an OFSI license to facilitate lawful receipt of funds.

6. Practical Takeaways

• Tenants should not assume sanctions excuse them from payment—legal advice is essential.
• Landlords should be proactive in managing the implications of designation, including engaging with OFSI.

References

[1] Court finds payment of rent under lease fell within exception to UK ...https://www.lexology.com/library/detail.aspx?g=a347aba1-8f89-44ea-9645-ef8762863d6f