Published:  EADT

Date:  19 April 2011

Author:  Rob Adam, Partner and Head of Dispute Resolution

The recession has had an impact on the commercial letting market. Most businesses lease rather than own their premises. Business leases tend to be caught by the Landlord and Tenant Act 1954 Part II, which provides a procedure whereby business tenants are entitled to renewal of their lease unless the landlord objects.

This process very often involves an application being made to the Court, ultimately for the purpose of the Court determining final terms of the new lease.

The terms that cause the most argument and litigation are predictable, namely, the term of the lease; whether there should be a break clause inserted; rent and whether the landlord is prepared to grant a new lease.

The difficulty with the Court process is that it is often cumbersome and expensive. There is a layer of Court fees, which are necessarily incurred. The timetable is sanctioned by the Court and there can be delay before a matter can finally be agreed. Sometimes clients consider Judges are not necessarily best placed to determine issues such as rent valuations.

In 1997, the Law Society and the Royal Society of Chartered Surveyors (RICS) launched a joint initiative to address some of these issues. This was called the Professional Arbitration on Court Terms Scheme (or PACT).  The scheme is designed to allow the parties, where they agree on using PACT, to appoint their own arbitrator or independent expert to determine the dispute or, alternatively, a discrete issue, for example, rent.

Under the PACT scheme the parties can dictate the timetable, can appoint their own arbitrator or independent expert, who would normally be either a surveyor or a solicitor specialising in leasehold renewal matters, and who has a specific skill tailored to these types of dispute. PACT can be used before or during court proceedings.

The recession is meaning shorter leases with the knock on effect that lease renewals will be coming around faster. Both clients and advisors should think about how best to achieve sensible commercial outcomes to leasehold renewal, to plan in advance of the end of their lease and to consider alternatives to litigation. Sometimes the Court’s intervention is required but landlords and tenants alike should not lose sight of the opportunity provided by the PACT scheme to achieve quick and perhaps more cost efficient settlement of these disputes.

For further information please contact Rob Adam