Key points

  • There are only limited rights to challenge an arbitrator's decision in the courts
  • All works carried out by a tenant which require landlord's consent should be properly documented by way of licence to alter
  • The licence should state how the works are to be treated for the purposes of rent review

Facts of Cordoba Holdings Ltd v Ballymore Properties Ltd

The landlord and tenant in this case had been unable to agree on a rent review, and had referred the matter to an arbitrator in accordance with the terms of the lease. The lease provided for any increase in rental value attributable to improvements to the premises carried out by the tenant to be disregarded.

At the review date, the premises were being used as a data centre. The arbitrator made his award on the basis that it would also be open to the hypothetical tenant to use the premises as a data centre, as opposed to an ordinary office building. Use as a data centre produced a higher value than office use. The tenant argued that the arbitrator had failed to disregard the works that the tenant said it had carried out outside the demised premises to improve the power supply to those premises. Without that improved power supply, the tenant argued, the premises could not be used as a data centre.

The Arbitration Act 1996 was designed to restrict the opportunity for the court to intervene in disputes which the parties have agreed to deal with by way of arbitration. For that reason, the Act contains limited rights of challenge to an arbitrator's award. The tenant sought permission to appeal on a point of law under section 69 of the Act. It also argued that the failure of the arbitrator to deal with the issue was a serious irregularity under section 68 of the Act, and sought an extension of time to challenge the award on that ground.

Unfortunately, despite the tenant's contention that it had upgraded the power supply into the building, it was unable to produce any documentary evidence to that effect. The High Court ruled that it was incumbent on the tenant to establish that the improvements it contended should be disregarded were indeed carried out by the tenant itself. In this case, there was no evidence as to the nature of the improvement, who had carried it out, when and at what cost. The arbitrator had made no finding as to the existence of any external works of enhancement to the power supply carried out by the tenant capable of affecting the rental value of the premises.

The court therefore dismissed the tenant's application.

Things to consider

Because the tenant was unable to produce concrete evidence that it had paid for and carried out works to enhance the power supply to the building, it was not necessary for the court to rule on what many would consider to be the interesting point of law raised by this case. Does a disregard of tenant's improvements for rent review purposes only apply to improvements to the demised premises carried out on the demised premises...?

The case does illustrate the importance - for both landlords and tenants - of ensuring that all works carried out by a tenant which require consent under the lease (which works outside the demise necessarily will do) are properly documented by way of licence to alter. The licence should state, in accordance with the lease, how the works are to be treated for the purposes of rent review.