Professional Arbitration on Court Terms article

I recently wrote an article in the Property Law Journal on PACT, Professional Arbitration on Court Terms, to give it its full title.

PACT provides an alternative procedure for the determination of lease renewals under Part II of the Landlord and Tenant Act 1954. It was established in 1997 jointly by the Law Society and the RICS, and the aim was to be able to lift lease renewals out of the court system.

You can read the full article HERE

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Paying the rent

Why do landlords own property?  It doesn’t take much thought – they expect to be paid rent, and if they don’t get paid on time then they’re going to do something about it.  We all have financial pressures and cashflow difficulties from time to time, and you might put off paying a supplier for a while.  If you put off paying the landlord, though, you’re picking the wrong fight.

There’s lots of things landlords can do when the tenant doesn’t pay the rent, but the top of the list is just changing the locks.  That can be done without any warning, when the rent’s overdue – you simply turn up in the morning to open up, and find that you’re locked out.  That’s an end of your lease.

You can get the right to be put back in possession, and get the lease reinstated, but you’ll have to go to court, and pay all the rent, plus interest, plus the landlord’s legal fees, and it will take a while.  Meanwhile, you’re out of your premises, and your business is suffering badly.

So if you can see that you’re going to struggle to pay the rent, the worst thing you can do is put your head in the sand and hope the problem will go away.  Many landlords will be prepared to grant concessions to help tenants get through a bad patch, and the fact you’ve been upfront about the problem will be appreciated.

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Two coats of paint

A business tenant served notice on his landlord to use the break option in the lease, and bring it to an end ten years early.  Before he left, he spent a lot on repairs and other work, to leave the place perfect.  He did such a good job that the landlord couldn’t find any fault with it at all.

He’d given the landlord a set of paperwork showing all the work that had been done, and somewhere in all that the landlord found a decorator’s invoice, for painting the interior with two coats of paint.  The lease required three.

That meant that the break option, which was conditional on the tenant complying with all its lease obligations, hadn’t worked.  The tenant had to pay rent for the next ten years, and all because of one missing coat of paint.

It didn’t have to happen that way.  Mistakes were made back when the lease was originally agreed, and they eventually came home to roost.

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When a day is too late

Leases can contain a lot of detailed procedures, some of which lay down time limits.  A good example is rent review – that’s the procedure for the landlord having the rent reassessed every so often, to keep pace with changes in the rental market.

Not all leases have the same rent review procedures, but here’s the sort of problem that some leases can cause.  The landlord gets things going by serving a formal notice proposing the new level of rent at £15,000.  Maybe the true market level would be £10,000, but obviously the landlord’s going to go in high.  The tenant counter-proposes £9,500.

Normally, if they couldn’t agree, after those opening shots, they could have the rent fixed by an independent third party.  But what if the lease says that the tenant’s counter-proposal must be made within two months, and as it happened the tenant was a day late?  You might say, what difference does a day make?  But some leases say that if the tenant misses the deadline, then he’s stuck with the landlord’s figure, and can’t dispute it.

If your landlord or his agent contacts you about rent review, you’ve got to dig the lease out immediately and check whether there are any deadlines you need to comply with. It can be a very expensive mistake otherwise.

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A matter of contract

What if there was a law that basically said you could keep your premises for as long as you want, no matter what the lease said?  That would mean you’d never have any relocation expenses, and you wouldn’t have to lose any goodwill you’d built up there.

Being realistic, you can’t hope to get a law which prevents the landlord from ever getting possession back, but in an ideal world he’d have to prove he’d got a good reason to get you out, and he’d have to pay you compensation.

I suppose you’d also want this law to say that the landlord couldn’t just name his price on the rent.  There’d have to be some sort of independent rent control to keep him from doing that.  And the lease terms would have to stay the same as well, so the landlord couldn’t change the terms of the deal you originally did.

Well, that law exists.  It’s called the Landlord and Tenant Act 1954, and it gives all those protections to business tenants in England and Wales.

What you have to watch out for, when you’re taking a lease, is the landlord saying that the lease is going to be ‘contracted-out’.  That means that the Act won’t apply to the lease, and you won’t have any of those rights.  That might not worry you – it just means that at lease end you have a completely free-market negotiation about taking a new lease.  But they’re important rights, so it’s something to think about carefully.

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Keeping in repair

Six little words: “keep the premises in good repair”.  That’s what leases usually say, and the trouble, expense and uncertainty those words can sometimes cause at the end of the lease have to be seen to be believed.

Imagine you had a five-year lease of a single storey shop with a flat roof.  The premises were a bit old and tatty, but so long as the shopfront and interior were good enough, that didn’t bother you much, and in fact it meant you got the lease cheaply.  You had a bit of trouble with the flat roof, and patched it from time to time.

Months after the lease ended and you moved out, out of the blue you got a repair bill from the landlord, and it turns out he’s completely replaced the flat roof, and now he wants you to pay for it.  Surely he can’t do that?  You took a lease of a shop with a dodgy old roof, so how can you be made to pay to leave the landlord with a shop which now has a completely new roof?  Can you be asked to leave the place better than you found it?

The answer is in those words “keep the premises in good repair”.  If the premises are not in good repair when you take the lease, logic says that in order to keep them in good repair, you first have to put them into good repair.  So yes, you can be asked to leave the place better than you found it.

When you take a new lease, one of the crucial things to do is to nail down the detail of what you can and can’t be required to do by way of repair.  And if you can’t agree to limit the risk in a way that works for you, you should walk away and find other premises.

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