Unopposed Business Lease Renewals - the Pilot Scheme and the Role of the Expert

The FTT’s pilot scheme

The pilot scheme for unopposed business lease renewals came into force on 1 January 2018 and is expected to last for one year. From this date, unopposed lease renewals issued in the County Court at Central London (the “CCCL”) will be transferred to the First Tier Tribunal (Property Chamber) (the “FTT”) after the Acknowledgment of Service is filed. The FTT’s standard directions (summarised below) will then apply. The stated aim of the pilot scheme is to “ensure that all cases proceed to a final determination as smoothly and as quickly as possible” and the standard directions aim to progress the case to trial within 20 weeks, with a valuer sitting with the Judge at the hearing.

The FTT’s standard directions make significant changes to the current process, as summarised below:

• The timeframe from the date of issue of proceedings to the final hearing should now take just 20 weeks.
• The parties will be entitled to agree a 3-month stay at the outset of the proceedings for Professional Arbitration on Court Terms (PACT) referral or mediation. Save for in exceptional circumstances, no further deferral or stay will be granted.
• If an initial 3-month stay is not agreed, the FTT will issue its standard directions, which will then apply. There will no longer be an initial Case Management Conference or an opportunity for the parties to negotiate directions beforehand.
• The directions permit one round of tenant’s amendments to the travelling draft lease. There is no provision for the preparation or exchange of a schedule of disputed terms.
• The directions do not contain an express provision for standard disclosure, although the parties are encouraged to co-operate throughout the process with the exchange of relevant documents and, where applicable, a party may apply for disclosure of documents that are relevant to the proceedings.
• The parties are required to exchange witness statements not less than 2 weeks before trial. In the absence of an express direction requiring the parties to do so earlier, this could be problematic where there are significant factual issues in dispute (for example, where either party seeks to include a break option in the new lease or the length of the term is in dispute) as the parties will only truly understand their opponents’ case immediately before trial.
• The parties’ valuers are required to provide their evidence at a much earlier stage, before lease terms are agreed (explained below) and at the hearing the Judge will sit with a valuer/assessor.

Clearly, therefore, the aim of the pilot scheme is to speed up the lease renewal process and progress to the disposal of the claim (either by consent or by final determination) much sooner than is currently the case. To help achieve this, the parties’ experts are required to be more proactive, from an earlier stage in the proceedings, than ever before.

The role of the expert

Under the FTT’s standard directions, the parties’ experts must:

• Exchange measurements of the property, provide details of their comparables and meet to clarify the issues in dispute within 2 weeks from the date of the directions.
• Exchange statements of agreed facts and disputed issues within a further 5 weeks.
• Exchange expert reports at least 2 weeks before the hearing date with full details of all comparables (see note attached) and a memorandum of agreed facts.

This represents a significant change to the current procedure, where the parties’ experts are required to meet/speak and exchange their lists of comparables and a statement of agreed and disagreed facts towards the end of the proceedings, as opposed to at the outset. To facilitate this, the parties’ experts must begin work on their valuation evidence at a much earlier stage (before lease terms are agreed) and will need to be more proactive early on. It remains to be seen how conclusive the valuation evidence will be where the other lease terms may have not, at that stage, been agreed and/or how effective PACT would be at the outset of proceedings (where it is unclear precisely which lease terms are in dispute). However, to achieve compliance with the FTT’s standard directions, it is recommended that the parties’ experts commence work on their valuations once the section 25 notice or section 26 request is served and ramp that up as the expiry date of that notice looms closer (where proceedings are imminent).

Unless the parties agree to extend the timeframe in the statutory notice for either party to make an application to the court for a new tenancy, the parties’ experts will need to be in a position to comply with their obligations at the outset of the proceedings. Asset Managers and valuers should therefore remain in close contact following the service of the statutory notice, and in particular where proceedings are imminent, to ensure that their interests and timeframes align and that the expert will be in a position to comply with his/her obligations to the Court within the required timeframes.

The presence of an expert valuer/assessor alongside the Judge at the hearing could also assist the court in making a determination as to rent/interim rent and may result in greater consistency in the outcome of cases. It remains to be seen how favourably (or unfavourably) that will be viewed going forward!

The pilot scheme does not alter the experts’ overriding duty to help the court with matters within their expertise. However, generally speaking, given that the main contested term of the renewal lease essentially comes down to rent (there are of course other key terms such as the length of the tenancy and/or the incorporation of a tenant’s break option or a landlord’s redevelopment break, which may be in dispute and are beyond the scope of this note), the role of the expert to be more organised and proactive, and to move quickly and decisively at an early stage, takes on a greater significance than ever before.

Vipul Kapoor is a Senior Associate in the Real Estate Disputes Team and a member of the FTT Pilot Scheme User Group for Unopposed Business Lease Renewals.