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Rent Reviews
Most modern leases provide for a rent review every five years on the anniversary of the term date, although some may specify a different period or date.
The lease usually specifies how the review process is initiated. The landlord will normally be required to start the review process and will need to write to the tenant. The exact form of the notice and how it should be served will be dictated by the rent review clause in the lease. Any notice sent by the landlord or counter notice from the tenant should clearly communicate its purpose. The rent review clause may require the landlord to specify a rental figure in the notice. If the landlord states in the notice that the figure is the true open market value of the property then the notice will potentially be invalid if the figure is found to be completely wrong. Landlords should look at similar properties in the market or seek professional advice as to the market value when deciding upon a figure.
If there are any errors in the notice itself then the usual test is whether a reasonably minded recipient would be left in doubt as to what was intended by the notice.
Use of Independent Third Party Where Dispute
Where the new rent cannot be agreed then well drafted rent review clauses will provide for referral to an independent third party either by the landlord or by either party. The clause will also state who chooses whether the third party is to act as an expert or arbitrator.
Expert or Arbitrator?
| Expert | Arbitrator | |
|---|---|---|
Time and cost | Quicker and cheaper | |
Nature of dispute | More effective with simple disputes | Better handling very complex rent review clauses, if there is a lot of money at stake or where the type of property is unique. |
Representations | May take into account parties’ representations but not legally obliged to do so. Will use own skill and judgment to reach a figure. | Both parties make representations In this process. The arbitration process will be governed by statutory controls |
Liability | Can sue expert if negligent | Immune from actions of negligence |
Appeals | Cannot appeal against decision | Can appeal against arbitrator’s decision on a point of law |
Appealing Arbitrator’s Decision
You can appeal an arbitrator’s decision on a point of law. An appeal can be made by agreement between the two parties or with leave of the court. The court must be satisfied that:
In determining the question of the point of law in dispute, this will substantially affect the rights of one or more of the parties involved;
The question must have been one that the arbitration tribunal was asked to determine;
When making their findings, the decision of the tribunal on the question must be obviously wrong or if the question is one of general public importance then the decision must be at least open to serious doubt.
It is just and proper in the all the circumstances for the court to determine the question.
Use of expert
The scope of the expert’s remit in resolving questions relating to the determination of the rent will depend on the wording of the lease. Most, well drafted leases will contain a detailed set of directions as to the assumptions and disregards within which the expert must act. The extent/limit of the expert’s power is a matter of construction and a question of law. Some leases will give the expert sole and exclusive power to construe the lease and determine the appropriate rent. In this case, their decision will be immune from challenge unless they have clearly departed from their instructions to a material extent. Some leases will give more limited powers, in which case, the court may be required to intervene where the expert has gone outside of his decision-making authority. An expert can also be sued where they have been negligent.
Rent During Dispute
If the new rent has not been agreed by the review date, then the rent will continue to be paid at the old rate until the dispute has been resolved and the new rent determined. Once the new rent is agreed, then the tenant will owe the landlord an additional sum being the difference between the old rent and the new rent dating back to the review date. This will be payable either on the day the rent is determined or on the next rent payment date. Leases may contain express provisions requiring payment of interest on the backdated sum. Arbitrators have the power to award interest in the absence of such a provision.
If you are a landlord or a tenant that is currently in dispute during a rent review procedure then we can assist you and attempt to resolve your issues amicably. Why not give us a call if you are coming up to a rent review date so we can advise further on how to avoid disputes in the first place?
For further information please contact Jill Lawton on 01689 887855 or by email jill.lawton@cwj.co.uk.