22 June 2018

Top Tips: picking up the pace in unopposed lease renewal proceedings with the tribunal's pilot scheme

Under a 12-month pilot scheme agreed late last year between the First-tier Tribunal (Property Chamber) (FTT) and the Central London County Court (CLCC) and launched in January, unopposed lease renewal claims under the Landlord and Tenant Act 1954 (1954 Act) are now being transferred from the CLCC to the FTT in an attempt to smoothen and accelerate what is often a long-winded, costly process.

Background

A working group on property disputes, chaired by the President of the FTT, was set up by the Civil Justice Council to explore areas where the distribution of property cases between the courts and the FTT could be improved to optimise the use of judicial and administrative resources.

In a report dated May 2016, the group was "interested to note that there was some support for the determinations of rental levels in low value business tenancy renewal cases going to the Tribunal". The rationale for this proposition was that parallels exist between such cases and residential new lease applications already dealt with by the FTT, which would justify applying similar directions.

Key word: proportionality

While the renewal of a business tenancy is generally unopposed in principle, determining the terms of the new lease is rarely straightforward. The focus is almost always rent but disagreements commonly arise concerning term length, the grant of a break right or other terms modifying the existing lease. For this reason, current practice usually involves repeated stays of protective proceedings to allow for these terms to be negotiated.

Unopposed lease renewal claims almost never go to trial, but it will sometimes take years before a new lease is agreed to the parties' satisfaction. This is arguably legitimate, where a truly contentious point arises. On the other hand, this practice has raised concerns among Court officials, who are losing patience with tactical time extensions to protect parties' positions.

Despite an indication to the contrary in the 2016 report, it would seem that unopposed lease renewal claims of any value are susceptible to fall under the pilot scheme. Whether transferring a case to the FTT is appropriate will be at the courts' discretion, and parties should be alive to the changes such a transfer entails, however complex they believe their case to be. These changes are set out below.

A new 20-week procedure

In November 2017, the FTT published the draft Guidance and Standard Directions it proposes to apply to business lease renewal proceedings (updated versions have not been made publicly available and copies must be requested directly from the Tribunal).

Note that proceedings should still be issued at the CLCC (and the usual fees will remain payable), following which they will be automatically transferred to the FTT on issue if the case is considered appropriate.

The FTT's timetable is much shorter, and much less flexible, than the typical Court process. It mirrors that of residential leasehold enfranchisement cases. In summary:

There is no longer a case management conference, and the FTT's standard directions apply. These do not provide for formal disclosure or exchange of witness statements.
The target timeframe from the date the claim is issued to the hearing is just 20 weeks. Parties may apply for one 3-month stay at the outset, if they wish to defer their case to Professional Arbitration on Court Terms (PACT) or "another recognised dispute resolution service" – otherwise they should assume no stays will be granted, save in "exceptional circumstances".
Lease negotiations are expected to have begun before the claim is issued and to be wrapped up swiftly afterwards (within a total of 5 weeks). The landlord has to provide the tenant with a draft travelling lease within two weeks of directions being issued, and these only allow for one round of tenant amendments.
Expert valuers will continue to play a key role, but will have to get their comparables ready much earlier on, while the lease is still in draft form and while issues in dispute may still come up. Without knowing the terms of the lease they are valuing, it is likely that amendments to valuations may be required right up to the date of the hearing, although expert reports must be exchanged two weeks beforehand. How this will work in practice remains to be explored.
The parties must complete a listings questionnaire, indicating their advocates and experts' availabilities. Cases will be block-listed, on the assumption that 95% are expected to settle before the hearing. A postponement may be sought; however this is unlikely to be granted just because negotiations are still ongoing and the lease is almost ready.
A valuer will sit with the Judge at the hearing, contributing to tribunal expertise and, hopefully, the consistency of case outcomes.

What next?

We have noted very little information in the public domain about the progress of the pilot scheme so far, which suggests its application has been relatively narrow. However, with half a year left running, landlords and tenants who have served section 25 and section 26 notices expiring throughout the rest of 2018 should be ready to move quickly.

There is also potential for lasting reform; if the scheme is deemed successful, it should replace current practice altogether and be rolled out nationwide. However, our team have seen several renewals remain at the CLCC, on the basis that they are allocated to the Fast-Track.

Top Tips

Prepare to start negotiating a new lease immediately after service of a 1954 Act notice.
There is no provision for a schedule of disputed lease terms to be circulated – however this may still be a sensible initiative. In particular, this may assist parties in arguing for the exceptional circumstances necessary to obtain a deferment or postponement.
Work closely with your professional valuer throughout.

In conclusion, legal practitioners, landlords and tenants alike should take this new system seriously and be as proactive and cooperative as possible in driving negotiations for a new lease. We should all welcome any incentives to speed up the renewal process and reduce costs, but it remains to be seen whether such drastic reorganisation is realistic from a practical point of view, or commercially sensible in high-value cases.

Mathilde Durand-Delacre