A pilot scheme has been launched to transfer unopposed lease renewals from the Central London County Court to the First-tier Tribunal.
A tenant who leases and occupies premises for the purpose of its business will have a right to renew its tenancy at the end of the lease term. This right arises under Part II of the Landlord and Tenant Act 1954. The landlord and tenant can agree to contract out of this right but if they do not, they will need to try to agree terms for a new lease, at the end of the term.
If the landlord and tenant cannot reach agreement, either party can start proceedings in court to have a judge decide the terms. If the landlord is happy for the tenant to stay, these will be unopposed lease renewal proceedings. If the landlord wants the premises back, the proceedings will be opposed.
Unopposed proceedings do not usually involve complex legal arguments and very few reach trial, but they can take a long time. The main issues in dispute tend to be the rent payable under the new lease, the length of term and whether the tenant should have a break option. These questions are often determined by looking at market comparables - evidence of similar leased properties in the local market.
To date, the main forum for resolving these issues has been the court and the only real alternative has been Professional Arbitration on Court Terms (PACT) or . Now, HM Courts & Tribunals Service has initiated a pilot scheme for an alternative means of resolution.
The pilot scheme
Lease renewals claims can be issued at any County Court. However if they are not issued at the court closest to the property concerned, they will usually be sent to the court closest to that address.
From 1 December 2017, unopposed lease renewal claims issued in the Central London County Court (which are not sent elsewhere) will be transferred to the First-tier Tribunal (Property Chamber) for determination. After transfer, the Civil Procedure Rules which govern court proceedings will continue to apply and the tribunal will have the same powers as the court for awarding costs.
The aim is that all cases proceed to a final determination as smoothly and quickly as possible.
What will be different for those involved in the pilot scheme?
The main differences will be as follows:
- The parties will have the option at the start of the process to postpone the process for three months, but only if they confirm that they are going to PACT or another recognised dispute resolution service, not just for general negotiations. If they do not take this option, they will only get the chance to refer the matter to PACT in exceptional circumstances once directions have been issued;
- Draft standard directions have been produced, designed to progress the case to trial within 20 weeks, under which:
- The tenant only has one chance to comment on the draft lease;
- Experts must begin work on their reports while the draft lease is being negotiated between the parties. This means that experts will be engaged much earlier than is currently the case in court proceedings;
- There is no provision for disclosure, witness statements or Scott schedules (schedules of disputed terms);
- If the case reaches trial, then it will be listed along with a number of other cases over a two day period, and will be heard as soon as there is a tribunal available to hear it. Priority may be given to parties who have complied with directions and delivered hearing bundles on time;
- At trial, the tribunal judge will be assisted by a tribunal valuer.
Due to these measures, theoretically a case should progress through the tribunal much more quickly than through the court and at less cost.
Initiatives to speed up the lease renewal process are, broadly, to be welcomed but some concerns arise from these changes:
- Sometimes issuing proceedings at the last minute is unavoidable. A postponement of one three month period does not give the parties much time to gather evidence and negotiate constructively;
- Often, the real issues in dispute are not clarified until the draft lease has gone back and forth; asking for experts reports during this process may be premature;
- The purpose of the lease renewal process is to protect the tenant's interest and yet, under these changes, the tenant will have only one chance to comment on the draft lease;
- The proposals appear to assume only rent will be in dispute given that there will be no Scott Schedule or witness statements. However, how or when will parties disputing more legal issues be able to explain and justify their positions without these ways of bringing evidence? For example, valuation experts will not be qualified to attest as to how a certain clause should be interpreted. The parties will have to apply for bespoke directions to allow for this but again, they may not know that this will be necessary until negotiations are at an advanced stage;
- Listing hearings in short sequence places pressure on the tribunal to make a quick determinations. This may result in evidence being overlooked or misunderstood resulting in greater dissatisfaction of the parties and a higher appeal rate.
More positively, having a valuer assist the tribunal judge should ensure that the dispute is determined by someone with appropriate industry expertise.
This move to shift specialist proceedings to more suitable forums is to be welcomed, especially if it means that cases can be determined more quickly and efficiently and with proper industry knowledge being applied to the determination.
However, parties used to issuing proceedings at the last minute and then negotiating terms over a period of time will need to adapt their practice. They will need to move quickly under the new process or seek to agree extensions to the deadlines for service of statutory notice to buy time for negotiations before proceedings are issued.
Finally, this new process will be applicable to properties only served by the Central London County Court. It may be tempting for a landlord or tenant of premises elsewhere to issue proceedings in London to secure a quick resolution but that will not necessarily be successful if the case transferred back out to a local court.