The law governing unopposed lease renewals has remained largely unchanged since the Landlord & Tenant Act 1954. This is set to change with the introduction of the lease renewal pilot scheme issued in the Central London County Court, which is due to run until the end of 2018.

Rachael McConaghie, Partner and Head of Real Estate Dispute Resolution at Spearing Waite explains.

While it is uncommon for lease renewal claims to go all the way to trial, the progress of such claims can be extremely slow with a substantial number sitting on the Court record for months or even years without ever actually reaching trial or making any progress at all.

The new pilot scheme is set to overhaul this practice. A new fast-track disposal process will be introduced nationwide with a view to broader and permanent reform.

The aim of the pilot scheme is to ensure that all unopposed lease renewal claims proceed to a final determination as smoothly and as quickly as possible.  This means that under the scheme, unopposed lease renewal claims will automatically be transferred upon issue from the Court to the First Tier Tribunal (Property Chamber) (FTT).

The objective is to reduce the resources expended in the current system

Changes to the current process will include a radical decrease to 20 weeks in the time it takes from the issue of proceedings to a final hearing.  The parties will only be allowed one three-month stay at the outset for either a PACT referral or a mediation.  There will be no case management conference.

To further speed things along, the directions will only allow for one round of tenant’s amendments to the draft lease.  The directions will not provide for disclosure, witness statements of fact or Scott Schedules of matters in dispute.  Expert valuers must prepare their valuation evidence at a very early stage before the lease terms have even been agreed.  The Judge will sit with a valuer or an assessor.

The potential effects of these changes could be significant

The parties will need to progress the proceedings much quicker and at a more efficient pace than in the past. There will be more emphasis on seeking to submit a draft lease and commence negotiations even before proceedings have been issued, in order to try to agree all the terms other than rent.

One of the most interesting changes is that hearings will take place before a First Tier Tribunal Judge who will be assisted by a valuer. The hope is that this expertise, particularly that brought by the valuer, will be usefully brought to bear on unopposed business lease renewals especially where the only issue in contention is that of rent.

The standard directions in the pilot scheme make it clear that it will be necessary for the parties to apply at the outset for variations to those standard directions where, for example, the dispute over the appropriate terms of the new lease requires witness evidence. The early identification of the preparation for any such variation will be essential.

Consequences of the lease renewal pilot scheme

Work will need to start early on the drafting of a new lease so that parties and their legal advisers will have considered all issues, either immediately on the service of the Section 25 or Section 26 Notice or before.

Where the terms of an old lease are out of step with modern leases, it is possible that parties may require more time than the new directions permit. In such cases a sensible course would be for the parties to enter into a written agreement to extend the time before they issue a claim.

The most common complaints by clients with uncontested lease renewals relate to the court process being too slow, or that the judge has no expertise in determining the rent to be paid. The fact that the pilot scheme is addressing these two fundamental issues is encouraging. The move to ensure the judge will sit with a valuer to provide assistance on valuation issues is particularly welcoming.

The hope is that with the pilot scheme in place, matters will be dealt with more effectively and more efficiently. This will mean that parties will need to consider, even before they issue Section 25 or Section 26 Notices, the form of draft lease they are seeking.

This may lead to frontloading of costs but it will hopefully in the long run mean the process is far quicker and, on those matters where no agreement is reached on rent, then the matter will be determined with the expertise of a valuer assisting the court, something which has been missing up until now.

Under the lease renewal pilot scheme, directions will be strictly observed, otherwise the FTT may strike out a claim in the event of failure to comply with directions or bar a defendant from taking any further part in the proceedings or to determine all issues against them.

The compressed nature of the timetable reflects the rationale that, since the parties issued either a section 25 or section 26 notice on one another quite some ago, they will have already had sufficient time to consider their positions before issuing a claim.

If the scheme is rolled out nationwide it will have a significant impact on landlords and tenants alike and the way they deal with lease renewals. The main outcome being that new leases could be executed in as little as three to four months; now that is really something to look forward to.

For more information or advice, please contact Rachael McConaghie.

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