Modernising Business Tenancies: Where and how should disputes be heard?

The Law Commission is consulting on the models for renewal of business tenancies under the Landlord and Tenant Act 1954 (the “LTA 1954”). For more details as to the phase 1 consultation (the “Initial Consultation”), please see our Insight: Modernising Business Tenancies – the end of security of tenure? This is the first in a series of Insights examining points that appear likely to be considered once the model for renewal of tenancies has been settled following the Initial Consultation. The Initial Consultation is set to conclude on 19 February 2025. 

The Initial Consultation identified that consideration needs to be given to the forum in which LTA 1954 disputes are heard. It is widely acknowledged that the present mechanism for conducting unopposed tenancy renewals through a court claim (“Unopposed Renewals”) can cause unnecessary expense and delay for both tenants and landlords. It can be used as a tool by either party to weaponise costs and delay in proceedings in order to increase pressure for settlement of disputed terms. The Initial Consultation refers to the pressures created in negotiating protected tenancy renewals under the heading of “Negotiating for a renewal tenancy in the shadow of the 1954 Act”. 

At present both opposed and Unopposed Renewals can be heard in the County and High Court. This may be more appropriate for opposed renewals, in which substantial expert and factual evidence may need judicial consideration. It is less appropriate when landlords and tenants have agreed that a renewal tenancy should be granted and terms need to be settled. Some possible alternatives are considered below:

1. Professional Arbitration on Court Terms (“PACT”)

One option, already available for Unopposed Renewals, is PACT. In claims referred to arbitration under PACT, a surveyor or lawyer can be appointed as an arbitrator to determine some, or all, of the terms of the renewed lease. This procedure has been in existence since 1997 but is not used in the majority of lease renewals and when it is, it is usually only in relation to determining rent. Once the rent or other term has been determined by the arbitrator, the claim can be returned to court for a final order. When the aspect determined by PACT is rent, agreement of the parties on other matters tends to follow. 

One of the perceived disadvantages of PACT is that parties lose the ability to negotiate terms in dispute. Parties can still negotiate but they usually have to do so more quickly before the rent or other term is settled by the arbitrator. This leads to the same endpoint as when the term is determined at trial by a court but potentially a lot more quickly. This leaves it open to parties to seek to use the delays created by the court, lease renewal procedure to gain a tactical advantage in negotiations.

Although PACT does not dispense with court involvement entirely, it is usually cheaper and quicker than court proceedings since it avoids the needs for hearings and some aspects of case management. It also uses less court resources and reduces legal costs. The parties still have to issue a claim, provide an acknowledgment of service and conclude the claim with a consent order but may have to do little else for and in court.

A potential option which the Law Commission could explore is requiring parties to explain why PACT would not be appropriate when they issue and acknowledge service of an Unopposed Renewal. The court could be given the power to order the parties to refer issues to PACT if appropriate. This could make the Unopposed Renewal procedure cheaper, quicker and less onerous. 

2. Transfer of Unopposed Renewals to the First-tier Tribunal (Property Chamber) (“FTT”)

HM Courts & Tribunals launched a pilot scheme on 1 January 2018, transferring all Unopposed Renewals issued in the County Court at Central London to the FTT (“the Pilot Scheme”). Originally, this was intended only to last for one year. It continued until January 2024. The Pilot Scheme was suspended over concerns as to whether the FTT had jurisdiction in LTA 1954 claims.

The Pilot Scheme was liked by many users. It issued standard, case management directions quickly and accelerated the claim process. It regularly achieved a final hearing date for the unagreed terms within 6 months. In addition, the FTT sat as the County Court. The costs rules applicable in the County Court applied to the FTT pilot scheme. All cases were allocated to the fast track and the FTT had full costs shifting powers. 

A further benefit of Unopposed Renewals being heard in the FTT was the presence of a property specialist such as a surveyor or valuer on the panel together with its experience of property matters and its knowledge and expertise of the property industry. 

One difficulty with transferring matters to the FTT is its future capacity to deal with Unopposed Renewals. This may be substantially reduced by the increase in Building Safety Act work falling within its jurisdiction and the Renters’ Reform Bill which is anticipated to be enacted and come into force in 2025. As a result of the abolition of Assured Shorthold Tenancies, the number of challenges to rent levels and increases by tenants to be heard in the FTT is likely to rise considerably (for more details see our Insight: Renters’ Rights Bill: Top ten key changes for landlords and tenants). If Unopposed Renewals were to be transferred to the FTT, provision might also be needed for allocating more resources to it. 

3. An LTA 1954 Court Protocol

Another option the Law Commission could consider is a change to court procedure to try to reduce time and costs needed to deal with and complete LTA 1954 claims by introducing a pre-action protocol for Unopposed Renewals. This could include front loading a claim with certain pre-action steps such as a requirement for expert reports to be filed by the claimant at issue. In addition, the parties could be required to mediate, within a fixed period of time of service of the claim. These changes would cause parties to incur costs earlier than under the existing system and therefore might not be attractive although they could significantly speed up the renewal process. 

4. Change in Court Procedure 

Alternatively, new procedural rules could be introduced for Unopposed Renewals which might include:

• A requirement for mediation and/or PACT after Unopposed Renewal claims are issued and acknowledged;
• A standard form of directions to avoid any need for negotiation and dealing with a court to identify these;
• Disclosure in normal circumstances to be limited to an initial list of documents on which a party relies to be provided when filing a claim or acknowledgment of service;
• Standardising information provided in expert reports such as in relation to comparable transactions.

The options which the Law Commission could consider in its phase 2 consultation will depend on the model of security of tenure which is to be adopted. Any modernisation or alteration of the existing system for Unopposed Renewals should aim to reduce the length of time and cost of lease renewals and provide a fair process for both commercial landlords and tenants.

This insight does not constitute legal advice. If any advice is needed as to the specific circumstances of your case, please contact Andrew Ross, Matt Cordwent or your usual Charles Russell Speechlys’ contact.