LEASE RENEWAL

LEASE RENEWAL AND PACT

The legislation that is the Landlord and Tenant Act of 1954 gives most businesses the right to renew a lease under the Act however, there are exceptions to this, and good professional advice should always be sought. Fusion Estates will advise on the optimum deal for your business be you tenant or landlord.

When a new lease is being negotiated, it is possible to ‘contract out’ of any security of tenure in respect of the lease with the agreement of both parties. It is essential that advice is sought before a new lease containing such an ‘opt out’ is signed to ensure both parties are aware of what they have signed up for.

In circumstances where a new tenancy has been agreed but the landlord and tenant cannot agree either the rent or some of the terms, then either party may apply to a court under the 1954 Act. For either landlord or tenant, putting a dispute before the court may be a daunting prospect, but there is an alternative way to proceed.

Towards the end of the 1990’s the Royal Institution of Chartered Surveyors (RICS) along with the Law Society launched PACT (Professional Arbitration on Court Terms), a scheme using arbitration or independent expert determination to resolve disputes on rental issues or any other terms contained within a lease. It is worth noting that as the scheme operates around the principles of the 1954 Act, the tenant does not lose any of their rights.

These days, courts like to see alternative actions to resolve disputes where appropriate. It therefore makes sense to use a surveyor, arbitrator or expert familiar with rental and valuation principles to resolve rental disputes.

A lease renewal process starts usually by the landlord serving a ‘section 25 notice' which tells a tenant if the landlord is willing to renew the tenancy or not. Assuming the landlord wants to renew, the notice sets out the terms for the new tenancy, these are points for discussion and the tenant does not have to accept them.

The tenant could take the lead and send the landlord a ‘Section 26 notice’ setting out his/her proposals for the new tenancy.

Fusion Estates can give professional advice at this stage regarding the terms for a new tenancy any negotiate agreement to avoid going to court or using PACT. The most common dispute is that of rent, one of Fusion Estate’s chartered surveyors can give their professional advice in this regard.

In the event of the parties being unable to agree new lease terms, PACT can be used as an alternative to court proceedings. Traditionally under PACT, both parties agree a ‘Consent Order’. Draft consent orders can be found on the RICS website and can be adapted to fit individual circumstances.

Issues for consideration when applying to a court for a Consent Order are :

• What exactly is in dispute – rent, duration or other terms of the lease.

• If rent is the main issue is this the interim rent and/or the new rent. What is the date of valuation?  this is most important in a rapidly changing market.

• Is the dispute best settled by an arbitrator or independent expert?

• Should the arbitrator/expert have specific experience or work to a timetable agreed by both parties?

• Do both parties want a timescale in which to agree a suitable arbitrator/expert including a default position – this is usually for an appointment by the RICS.

Application to the court is made once an agreement on these points has been arrived at so as to obtain a consent order which will also act as a stay of court proceedings.

In practice many landlords and tenants come to an agreement on a suitable third party. If an agreement cannot be reached, an application may be made to the RICS for the appointment of a PACT arbitrator or independent expert.

From 2004 the ‘Regulatory Reform Order made some changes to the 1954 Landlord and Tenant Act.  One of the changes gives the landlord and tenant the right to an extension of the section 25/26 notice and the use of PACT without recourse to the court. The tenant should ensure the notice does not expire or they will lose security of tenure. It would be wise for the parties to draw up an agreement taking in points to be considered for a consent order.

Because decisions are made by property specialists and not by judges, PACT should be more flexible, cheaper and quicker than going before a court. The arbitrator/expert’s decision is binding as in rent review cases. Of course as with all lease renewals, the tenant can either decline or accept the terms of a new lease and vacate the property.

Parties are free to agree on who should be appointed as arbitrator or expert.