The Commercial Rent (Coronavirus) Act received royal assent less than a year ago, on 24 March 2022. The scheme of the Act was to enable the resolution by arbitration of disputes as to the liability for rent arrears built up by businesses during closure forced by regulations concerning the Covid-19 pandemic.
The government’s impact assessment estimated 15,500 businesses to be within the scope of the Act’s arbitration procedure, of which around 7,500 cases were expected to go to arbitration (a figure subsequently revised down to more than 1,000 cases).
The Act provided for suitably qualified organisations to become approved arbitration bodies to administer the arbitrations. Falcon Chambers Arbitration (a bespoke property arbitration service run by barristers) was chosen to be such a body, joined by six other institutions, including the RICS and the Chartered Institute of Arbitrators.
Falcon Chambers Arbitration received 54 referrals to arbitration and our arbitrators have published 15 awards, with more in the pipeline. It is thought the other approved bodies have had negligible involvement in the scheme.
The reason for that probably lies in the fact that the disputes under the Act that we received were mainly legal in nature, concerning property law in particular, and involving little valuation. Why there were so few referrals overall perhaps lies in the fact that awards were required by the Act to be published on each body’s website – a useful piece of writing on the wall from which everybody could learn.
The positives
Our experience of arbitration under the Act suggests to us that it ought to have a greater role in the resolution of commercial property disputes. Apart from the Act itself, and other statute-led arbitration schemes (such as those in agricultural disputes and PACT referrals in the sphere of business tenancy renewals), commercial property disputes that are referred to arbitration are seldom encountered.
That is so despite the fact that arbitration enjoys a number of advantages over litigation: the parties can select their own experienced arbitrator by agreement, rather than having a judge (who may be unfamiliar with the terrain) imposed on them; they can name their own schedule, rather than having to fit into the courts’ busy timetable with other litigants; they can craft their own procedures, rather than having them imposed by the court; and arbitration tends to be less expensive than litigation.
Points to note
So why is arbitration so seldom encountered in the field of commercial property disputes? The answer may be that where parties are in a state of contention, their area of disagreement is likely to extend to cover the choice of arbitrator, with party A being automatically suspicious of any recommendation by party B. It may be easier to litigate the dispute rather than attempt other means of resolution.
The parties cannot be compelled to go to arbitration unless they are bound to do so under a contract between them. Instances of arbitral dispute resolution provisions in leases are usually confined to rent review clauses, while such provisions are commonly only found elsewhere in development land agreements.
Our experience is that such clauses work well: parties to such agreements know what to expect and are familiar both with the appointment of an experienced and trained arbitrator by the RICS or the CIArb and with the need, if it arises, for the arbitrator to engage the services of a legal assessor, in the event that the dispute raises legal issues with which the arbitrator needs assistance.
Awards by Falcon Chambers Arbitration arbitrators under the Act were dealt with rapidly, typically taking three months from start to finish (albeit with longer timescales where the parties wished to negotiate). One of the authors’ last experience of litigation, by contrast (three days in the county court in early February) involved proceedings that were commenced in April 2021, only reaching trial after 22 months, and was certainly not untypical. There was no particular reason for that delay (and, indeed, the court in this case was relatively quick) – that is just the usual litigation experience.
The potential way forward
Our regular conversations with the Department for Business, Energy and Industrial Strategy (which oversaw the 2022 Act arbitration scheme) noted the success of the scheme and our suggestion that government might consider legislating in a similar way for other commercial property disputes (think applications for consent to assignment, to alterations and to change of use) was well received. However, it must sensibly be expected that any such legislative change would be likely to take many years to bring about.
As an interim measure, the government might think again about making PACT referrals compulsory. Experience suggests that many landlords and tenants prefer to go to court, where there is some prospect that their judge will be unfamiliar with valuation, rather than to a third party arbitrator or independent expert, who will have a better understanding of the field, and award a rent that will reflect the market in which they are experienced.
Litigation is therefore often preferred by those parties who do not want the “right” result. The introduction of a compulsory PACT procedure, at least for rental disputes, would help to ensure not merely that the “right” result will be reached, where cases do not settle but also that many more cases would settle because of the parties’ apprehension of the outcome.
Until a measure of this sort is introduced, the regrettable delay, expense and uncertainty involved in commercial property disputes is set to continue, to the enduring detriment of the commercial property market. Landlords and tenants depend on certainty in their arrangements, and the many vastly respected arbitrators with which the property market is peopled have the ability to provide that certainty. It is surely time to put these two elements of the market together.
Guy Fetherstonhaugh QC and Joe Ollech are barristers at Falcon Chambers
