Arbitrator's rent review award overturned because it was “illogical”

The recent case of Metropolitan Property Realizations Limited v Atmore Investments Limited [2008] EWHC 2925 (Ch), highlights the Court's ability and willingness to intervene in alternative dispute resolution (“ADR”) where it considers that there has been an irregularity leading to a substantial injustice.

In this case the parties were unable to agree a rent review and referred the matter to arbitration. The arbitrator adopted the landlord's method of calculating the revised rent, which looked at the rental income that the hypothetical tenant could obtain from subtenants. However, the landlord's method did not allow for the hypothetical tenant to make any profit from subletting. Even though the tenant's submissions to the arbitrator did not take issue with the point, the Court held it was still "incumbent on the arbitrator to reason through his award in a logical way" and therefore set aside the award.

Rent reviews and dilapidations are landlord and tenant areas where disputes are often resolved by ADR. However, clients and professional advisors should be warned that ADR may not always be the right course to take as it can be detrimental to a client's best interests, because of the limited rights of appeal.

Refusing consent to assign: A practical guide

The High Court has recently given a useful reminder to all property professionals of the practical issues that should be considered when a tenant asks his landlord for consent to the assign a lease. As we have already witnessed the current economic climate means that more commercial tenants will look to reduce their portfolios by assignment and landlords and property professionals will increasingly be faced with requests for consent to assign.

In the case of The Royal Bank of Scotland v Victoria Street (No. 3) Limited [2008] EWHC 3052 (Ch), the Court held that: -

1. The reasons the landlord gave for refusing consent were ones that a reasonable landlord might put forward.

2. A landlord considering these particular reasons would have been acting reasonably by refusing consent.

3. The reasons the landlord gave were adequately communicated to the tenant in the letter refusing consent to the assignment.

Although there is nothing new in this decision, the practical issues it raises are interesting and it serves to reinforce that if a landlord has genuine concerns regarding the assignee's ability to perform the covenants in the lease, then these are reasonable grounds for refusing consent.

Whilst this may well be an argument that landlords resort to regularly in these troubling economic times, it should be always be bourn in mind that refusing consent to assign may lead to an insolvent tenant.

Are your client’s business tenants really “unprotected”?

Are your client’s business tenants really “unprotected”? A recent decision by the Court of Appeal could well make for very uncomfortable reading for many landlords who thought that their business tenants were “unprotected” i.e. were contracted out of the statutory protection afforded by Landlord and Tenant Act 1954 (“LTA 1954”).

In the case of The London Borough of Newham v Thomas-Van Staden [2008] EWCA Civ 1414 the Court held that a landlord must delete any reference to a continuation of the term in the definition of the "term” for a lease to be validly contracted out. If this is not done then the lease will not be "granted for a term of years certain" and the tenant will have the full protection of LTA 1954. This decision is likely to affect a considerable number of commercial landlords.

This case highlights the need for a landlord, in circumstances where a lease has been validly contracted out, to make sure that either their tenant vacates promptly on the expiry of the contractual term or that any further periods of occupation are properly documented.

The message to remember is that any lease negotiations with an existing occupier must be conducted on a "subject to contract" basis.

Also property investors on the acquisition trail should be especially careful to check the wording of leases where they intend to purchase a property which is subject to an "excluded" lease.