Reforming the Landlord and Tenant Act 1954 – Is compulsory arbitration the answer for unopposed business tenancy renewals in England and Wales?

In this article, we explore one specific potential reform – compulsory arbitration for unopposed lease renewal claims, required where the parties are unable to agree all new lease terms between themselves.

PACT

There is already a voluntary scheme called Professional Arbitration on Court Terms or PACT. In this scheme parties can choose professional expert determination or arbitration, rather than going to court. However, both parties must agree to its use and in practice that is rarely. When it is utilised, it is mainly for determining the rent, once all other terms are agreed. This is often only after county court proceedings have been issued and costs incurred.

Statutory Arbitration

Statutory arbitration means that the arbitration process is imposed upon the parties by legislation. Most recently we saw this type of arbitration used after the Coronavirus Pandemic (Commercial Rent (Coronavirus) Act 2022 (‘CRCA’)) – to varying degrees of success – albeit in a unique and limited period.

Parties may also take comfort in knowing that statutory arbitration awards are appealable to the High Court in certain circumstances, i.e., if the tribunal lacked jurisdiction, there is a substantial error of law, or a serious irregularity in procedure.

How would it work in place of the Act?

1. Either party would elect to start the process of statutory arbitration and there should be no need to require such an election to take place before the expiry of the period specified in the notice starting the renewal procedure (assuming such a statutory notice specifying an expiry date is still needed after any reforms).
2. The arbitrator would either be agreed by the parties or appointed by a professional body. In respect of rent, a specialist valuation surveyor would likely make the determination. In relation to the lease terms, which could either be dealt with by the valuer, a surveyor or a lawyer. This might be a single arbitrator, or a panel.
3. If required, the arbitrators might appoint experts to advise them on a specialist area/industry (for example, shopping centres or telecommunications).
4. The parties generally have more control over the speed of the arbitration than they would over the court procedure. The procedure can be more informal – and a more forgiving process to smaller/individual landlord or tenant – who might represent themself.
5. The award would be made on the papers, removing the need for a hearing (though either party could request, or the arbitrator order, a hearing).
6. There would be no need for such awards to necessarily be made public preserving reputations in the market – especially awards in respect of rent – which are arguably secondary evidence of the market based on the opinion of the arbitrator and therefore not suitable comparables.
7. In terms of the arbitrators' costs, we have seen various suggestions mooted. Amongst the most attractive is perhaps the proposal that, for the determination of rent, a scale of fixed arbitrator’s costs could be applied. Those costs would be shared equally, unless one party had made a better "Calderbank" offer, to settle without prejudice save as to costs.
8. In relation to the parties’ own costs, recovery would be by exception (as is generally the position now and would mirror the position usually adopted in the Lands Tribunal).

Why have arbitration at all?

It seems to be the consensus that the current process of determining renewals in the county court is not working as it should.

Claims are issued out of necessity to protect tenants' statutory rights, causing costs to be incurred, and utilising courts' valuable resources.

Most claims are kept in the county court but rarely reach trial. Many of those claims are administratively draining on the courts, but rarely result in judicial guidance and those that do are non-binding county court judgments.

There is also much commentary that there aren’t enough judges with extensive landlord and tenant experience – meaning a higher (than ought to be) variance at trial.

Finally, there is an ever-increasing clamour that Alternative Dispute Resolution (ADR) (compulsory arbitration included) is one possible answer to the wider burden on the court system. In the recent Court of Appeal case of James Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416, the Court removed a primary blocker to court ordered ADR and held that courts do have the power to order parties to engage in ADR, provided the power is exercised in a way that does not impair the claimant’s right to proceed to a judicial hearing, and is proportionate to achieving a resolution of the dispute fairly, quickly and at reasonable cost. The Court of Appeal declined to provide any fixed principles when assessing whether to order parties to engage in ADR but did make reference to various materials and guiding factors.

For all of these reasons, in our opinion, change is needed, and statutory arbitration certainly should be one answer that the Law Commission gives serious consideration.