November 2024
If you are the landlord or tenant of a commercial property, can you think of a worse method than taking over two years and possibly costs of over £100,000 to determine the outcome of a lease renewal by someone with no professional property experience?
This could be the case due to a 70-year-old law which is radically out of date. The current lease renewal processes in the 1954 Act are mandatory, yet no longer reflect today’s market. Shorter lease terms of five years or less, have become commonplace so there is a risk that these unnecessary delays and costs, become a regular occurrence.
The 1954 Act has determined the nature of most leases on commercial property in this country since first being introduced. However, many believe it needs, at best, urgent reform, or at least is due a significant overhaul to its procedures and implementation.
As a result of the inequities produced when this legislation is applied to landlord and tenant relationships in the modern world, the previous government instructed the Law Commission, the independent body charged with keeping the laws of England and Wales under review, to investigate how the existing system can be made more speedy, easy to use and cost effective.
We hope the new Government continues with this review and makes the system more business friendly for both landlords and tenants.
Part of GCW’s team have recently met and made direct recommendations to members of the Commission based on our extensive collective experience, over the last 35 years of advising both landlords and tenants in lease renewal disputes. Each year, GCW negotiate hundreds of lease renewals, that include providing independent expert advice and act as dispute resolvers, so we are fully aware of the existing pitfalls in the court-based process.
What is highlighted is that settling commercial disputes outside of the courtroom is nothing new as the compulsory use of such methods directed by the recent Commercial Rent (Coronavirus) Act 2022, the more established Construction Act 1996 and support for these procedures given by the recent important Court of Appeal case of Churchill v Merthyr Tydfill in 2023 has shown.
Mediation and PACT have been adopted in many cases over the years to avoid agreeing an alternative to the current court system, but this must be by mutual agreement by all parties. If one side are happy to take the excessive cost or an undue delay to get the outcome they desire, such approaches cannot, currently, be enforced.
This means that whoever has the deeper pockets can financially bully the other party with the threat of incurring them a large amount of costs.
The current system is clearly unfairly favouring parties, whether owners or occupiers, with the strongest financial means. Although it is rare for cases to go all the way to trial, one party can use this as a threat to ensure they get a deal on their terms. For us, this could simply be resolved by making it mandatory, by law, to settle cases by Alternative Dispute Resolution - ADR, which is both quicker and more cost effective, with a court referral only being necessary for the largest or most complicated cases. With the current backlog in the court system this will hopefully help alleviate stress in other areas.
Most commercial lease renewals are uncontested, as the landlord has no objection to granting a new lease on reasonable terms. In such cases, particularly those where smaller tenants or landlords are involved, we believe that compulsory referral of such disputes to the various methods available of ADR would solve many problems regularly being thrown up by the current system.
It can be argued that contested renewals, where the fundamental question of whether the tenant has the right to be granted a new lease or not, should continue to be dealt with by the traditional system, where the additional cost and complicated procedures are more justified.
The new Government will be aware of the issues that face the UK’s high streets and the importance of allowing tenants to continue their occupation in these locations with a certain amount of security, but without being exposed to excessive costs.
At GCW, we therefore believe that while their spotlight is on the commercial sector, and particularly the retail sector, which makes up the majority of 1954 Act renewals, the Government should take the opportunity to improve the operation of this longstanding piece of legislation to bring it in line with modern commercial practice.
By using ADR, it could shorten the time span to six months and significantly reduce costs in many instances closer to £10,000, which will not only protect the smaller parties, but help address issues on the country’s high streets.