Time spent at a conference in the company of the many talented individuals who make up the membership of Index (the same, of course, goes for its sister organisation Arbrix and, indeed, any other gathering of experienced chartered valuation surveyors) reinforces the feeling that it is curious that parliament has twice passed up the opportunity to have the question “what rent should be payable in lease renewal proceedings” decided by valuers rather than lawyers.
In the cognate field of rent review, disputes as to value are determined by experienced valuation surveyors sitting as arbitrators or independent experts. The occasional legal points that arise are then commonly assigned to legal assessors. The system is tried and tested, and works well. The same goes for development agreements, which contain dispute resolution provisions, the usual form of which provides that legal disputes should be determined by lawyers and valuation disputes by valuers. It would be unthinkable for a valuation dispute to be determined by a lawyer with no experience of the complicated nuances of the real property market.
And yet this is precisely what Part II of the Landlord and Tenant Act 1954 provides for. Under that Act, all issues arising in a lease renewal dispute, no matter how complicated from a valuation point of view they may be, are to be determined by a judge, and not a valuer. When parliament came to reconsider the matter in 2004, despite paying close attention to the valuation formulae for determining interim rents, it left unchanged the situation whereby, if parties disagree, only the court may determine the level of the new rent.
This is all the more puzzling, because parliament has long had before it an example of how things may be done more sensibly, using Professional Arbitration on Court Terms. PACT works by allowing the parties to have their disputes determined by a chartered surveyor rather than a judge. Our experience of it is that it is straightforward, streamlined and relatively swift. It carries with it the advantage that the parties can select the third party that they think is best suited to the task, rather than having foist upon them whichever judge the Courts and Tribunals Service decides. Although one party (and sometimes both) may feel short-changed by their PACT decision, at least they cannot complain that the third party did not understand the evidence, or have the expertise to evaluate their contentions.
A serious problem
Parliament passed up the opportunity that the 2004 reforms of the 1954 Act gave it to make referral to PACT compulsory. There would have been nothing objectionable about such a course. Many other areas of the law make provision for disputes to be determined by suitably qualified professionals. For instance agricultural tenancy disputes, which are determined by experts in the First-tier Tribunal (Property Chamber) Agricultural Land and Drainage, or by (usually) rural surveyor-arbitrators appointed under the Agricultural Holdings Act 1986, or the Agricultural Tenancies Act 1995, in default of agreement appointed through the RICS, which determines (for example) the validity of notices to quit under the 1986 Act; and valuation disputes arising under the Electronic Communications Code, which are determined by the Upper Tribunal of the Lands Chamber, commonly involving a judge sitting with an experienced valuer.
Those responsible for the contrasting state of affairs in lease renewal disputes may say there are ameliorating features. First, courts have long been able to appoint experts to assist them but in practice they rarely do. Second, under a pilot scheme run by the Central London Civil Justice Centre, disputed lease renewals are referred to the FTT, among whose members are experienced chartered surveyors (including prominent members of Index). But these measures point up the nature of the problem, rather than solving it.
The problem confronting the county court is a serious one. The judges who staff the courts are respected lawyers, performing a demanding role in difficult times – but their daily case diet does nothing to prepare them for the sheer complexity of valuation disputes. The problem is not a new one: 20 years ago, in HMV Music Ltd v Mount Eden Land (unreported, Central London County Court, 2012), the judge hearing a lease renewal claim commented that his task was “near impossible”. The lease renewal outcomes which are once again beginning to people our courts show that, if anything, the problem has worsened.
Why worse?
Why worse? Because in the shifting seas of expert valuation debate, the rocks of certainty that judges seek to cling to are comparable transactions, no matter how difficult to interpret and disentangle from the disguised benefits and sweeteners that usually accompany them. However, the pandemic and its associated business disruption over the past two years have ensured that, in substantial sectors of the real estate market, there are no comparable transactions to guide the court to the right answer.
This is not such a problem for valuers who have received years of training and experience in the markets. Independent experts and arbitrators drawn from their ranks are not dismayed by the current dearth of evidence. While everyone naturally loves a good comparable, its absence is no deterrent to skilled chartered surveyors, any more than the lack of a case decision squarely on a point of legal debate is no problem for a lawyer used to reasoning through complex issues.
The government has shown itself recently to be capable of bold, innovative thinking when it comes to dispute resolution procedures, manifested most recently by the enactment of the Commercial Rent (Coronavirus) Act 2022, which delegates the resolution of disputed rent liabilities to arbitrators. A similar delegation of valuation disputes on lease renewals to valuation experts would not be bold: it is obvious.
Guy Fetherstonhaugh QC and Oliver Radley-Gardner QC are barristers at Falcon Chambers