PACT arbitration in commercial lease renewals

The third party appointed to make a determination under PACT will usually be an experienced RICS chartered surveyor with detailed knowledge of the commercial lease renewal process and the property market where the premises subject to the dispute are located.

The parties could also choose to appoint a lawyer, although that is far less common. The third party can be appointed as either an arbitrator or independent expert.

In most cases it is likely that the parties will provide the third party with a draft lease that is already in agreed form, save for the issues that they have sought determination on. That is because they have probably followed the lease renewal process as far as they can – which involves the production and negotiation of the draft lease – and have now reached an impasse over a few key terms.

As the phrase “on court terms” suggests, the determination of the third party on the issues referred to them is legally binding. The parties will therefore have to abide by the third party’s decision, and there is only a very limited right of appeal.

As set out above, under PACT, the third party can be appointed to act as either an Arbitrator or as an Independent Expert
We’ve summarised the key differences between the two below:

• Arbitrators can only base their determination upon the evidence and arguments submitted to them by the parties. Independent Experts in the other hand are instead required to carry out their own investigations to find the information and evidence required to make their determination.
• Disclosure of key documents can be forced in arbitration, whereas an Independent Expert does not have similar powers.
• There is a very limited ability to appeal the decision of an Arbitrator whereas there is no right to appeal the decision of an Independent Expert.

Which to choose will depend upon the parties’ preference and negotiations.
In practice the third party is usually appointed as an Arbitrator however as in that scenario the parties can control the arguments and evidence that the third party considers in support of their position.

In practice, PACT is often proposed after the schedule of unagreed terms has been filed at court – for more information on that see our article on the post issue stages of a lease renewal HERE.

At that point there is usually an agreed form lease apart from a few outstanding points that the parties can’t agree on. These are usually the annual rent and the length of the term. The third party will consider the evidence submitted by the parties and their valuation experts in support of their positions before making a determination on these points. The valuation experts will have prepared reports on what they believe the annual rent should be having regard to comparable evidence in the local area, just as they would in a court based lease renewal.

The third party will determine the length of term first, which will give them with a lease in which everything is agreed apart from the rent. They will then be in a position to make a determination on that also. They will then deal with any interim rent that they’ve been asked to determine – see our article on interim rent HERE for more details – before making a determination on costs if their instruction provides for that.

PACT is paper based

PACT is a paper based procedure, meaning that the entire process is dealt with via written submissions.

There is no need for the parties to attend hearings or a trial, no need to go through the laborious process of trying to find dates where everyone involved can be available, and no need to instruct advocates to make verbal submissions on one’s behalf.

PACT is Flexible

The structure of the process and the timetable that the parties must adhere too is completely up to them.

They can agree it between themselves rather than have what are sometimes quite onerous obligations imposed upon them by the courts.

PACT is Quick

Where the parties and their professional advisors are proactive, and if the third party has good availability, PACT can be a very quick way to achieve determination on a point or points that they parties can’t agree upon.

In some cases that can be as little as a few months, as opposed to up to say two years for a determination at trial in a court based lease renewal.

PACT is Cheap

The cumulative effect of the preceding points results in a process that is considerably more cost effective than pursuing a determination through the courts.

With PACT, many of the interim procedural requirements of the court process are stripped away, leaving a much more streamlined process that inevitably costs less to comply with.

PACT is Reliable

A further benefit of the PACT regime is that the parties have the reassurance that the person making the determination is a highly experienced professional with deep expert knowledge in their field.

Consequently, they can be confident in the third party’s ability to understand the key issues and in the decision they reach in relation to them.

As there are so many benefits to using the PACT procedure, we recommend to all of our clients that they consider using it where there is a genuine dispute about a key provision of a renewal lease and a resolution without court intervention looks unlikely.

We often suggest including the obligation to consider it within the court directions when lease renewal proceedings have been issued.

If PACT is agreed we take care of all of the paperwork. We help our clients to identify an appropriate professional to handle the determination, and we work with them, their valuers and lease advisory professionals to ensure that the arguments and evidence put to the third party are as strong as possible to give them the best chance of achieving what they want.