Business owners who lease their commercial premises and Landlords of commercial property should look again at an alternative process for lease renewal negotiations.

Lease renewals are coming around more frequently than they did 10-15 years ago, which is largely due to the lease period being much shorter. 

PACT (Professional Arbitration on Court Terms) was created back in 1997 with the aim of taking lease renewals out of the formal Court system. It really did not catch on and the attitude of the Courts to lease renewal applications had a lot to do with that.

The Courts used to be only too happy to regard the parties to lease renewal applications as they were able to deal with the timetable and progress by themselves. It was more a negotiation and the only reason the Court application had been made in the first place was because of statutory requirements. It did not really “fit” into the Court psyche. As a result, the parties could easily get the Court to rubber stamp agreements to extend dates and delay any meaningful involvement by the Court.

If the negotiations start in good time and both Landlord & Tenant can quickly agree terms, then a new Lease can be prepared and signed before the old one expires. Then it is simply a case of the new Lease seamlessly coming into force as the old one ends. 

Unfortunately things are rarely that neat.  The statutory timetable for a Tenant to have made a Court application to protect their right to renew can be extended by agreement. That can be quite stressful, not to mention requiring a very close watch on the extension dates; because if you cannot get a further extension, you have to have actually issued the Court application before the first extension expires. If you get that wrong you lose your statutory entitlement to have a new Lease. Once that happens you either have to move out or accept the terms your Landlord demands to get a new Lease.

So why should you now seriously consider using PACT when you have not bothered before?

Key Differences

Both the Court process and PACT will have a timetable for things to be done by the parties. The Court is much less likely to agree to extend the timetable even if both the parties are asking for it. Indeed under the Court Rules only one extension of no more than 28 days can be agreed by the parties and only if it does not jeopardise an existing Hearing date.
The Court process also has a more robust approach to missed dates than it used to. Its time limits have to be met or you run the risk of serious consequences, including having your Claim thrown out or being ordered to pay the other sides costs caused by the delay and the latter assumes you can persuade the Court to “forgive” the original failure in the first place.
Under PACT the timetable is largely in the control of the parties and if they wish to agree an extension they can do so.

The Court is very keen to limit Expert evidence to that of a single jointly instructed Expert. The Court has the power to order this even if both sides have expressed a view that they want to appoint an Expert each. 
Under PACT the parties can agree to the appointment of an Expert each and get on with it. This is particularly important in the context of arguments over what is or is not “market rent”. 

The leasehold renewal Court process is normally conducted in the County Court system. You may have a number of different Judges dealing with the case as it goes through the process and there is no guarantee that any of them will have any particular expertise in the commercial property market.
Under PACT the parties will be able to agree the identity of the person(s) who will determine the issues that they cannot sort out between them – this may be a Surveyor for arguments over rent or service charge issues and/or a Solicitor for arguments over the technical drafting of a new Lease. If the identity of the person cannot be agreed, an application can be made to The Royal Institute of Chartered Surveyors (RICS) and/or the Law Society to appoint a suitable person. That ensures that the issues will always be determined by someone with the requisite experience and expertise.

Court fees are increasing significantly and although the Court can and does demand the parties comply with deadlines, its own administration is rife with delay due to funding cuts, lack of personnel and fewer courts are having to cope with more work. Lengthy delays in getting Hearing dates are regretfully commonplace.
PACT should be faster and potentially less expensive. There are two types of PACT process. 

The first is after you have made your Court application. If both sides agree, you can shift the determination of the issues into PACT by lodging a Consent Order with the Court to that effect and in most cases the Court will happily endorse it. 

The second bypasses the Court system altogether. If there has been no Court application and assuming the parties agree to the use of PACT before the deadline for the Court application has expired, they enter into a written agreement. That agreement confirms that no Court application should be made until the PACT process has been completed and will often include specific agreement to extend the time for such an application. That protects the possibility of one party playing “dirty” and trying to use the suggestion of PACT as a means of running the clock down so that their opponent loses the right to make a Court application. 

If you want any help with this please contact Herrington Carmichael on drteam@herrington-carmichael.com