The post action stages of the commercial lease renewal process

The first direction that might be listed by the court, or agreed between the parties, is for there to be a stay of the proceedings. A stay is a temporary pause of the claim, often for a month or two. This pause is usually agreed where the parties might need a little more time to negotiate and finalise the terms of the renewal lease and to avoid the cost of having to comply with the future directions straightaway. The directions might also make provision for further stays to be agreed as matters progress.

If the new lease has not completed by the end of the stay, the timetable will then require a draft lease to be produced by a specific date. It will usually be for the landlord’s solicitor to produce the first draft. That draft will then be sent to the tenant’s solicitor who will have two or three weeks to review it, advise the tenant, and return the draft to the landlord’s solicitor marked up setting out the tenant’s proposed amendments. The landlord’s solicitor will undertake a similar task returning the draft lease to the tenant’s solicitor confirming which of the tenant’s amendments are accepted, which are not, and any further amendments proposed by the landlord. The directions may then include obligations on both parties’ solicitors to speak to try to agree as many of the outstanding points as they can. The idea behind that is to narrow the points in dispute between the parties as much as possible. In many cases this process may already have been undertaken during the course of negotiations, but the timetable fixes a time by which it must happen. The parties will get to a point where they either agree all terms and the lease can complete, or where a few key terms remain outstanding between them.

The next direction will be for the parties to draft a schedule recording all of the terms that remain in dispute.  This is often called a schedule of unagreed terms. By this time, there isn’t usually much outstanding. The parties are likely to have taken a commercial view on many of the smaller points that they couldn’t agree upon previously. There are some key issues that regularly remain outstanding however.

• The annual rent to be paid
• The length of the term of the renewal lease
• The inclusion of any breaks options
• The inclusion of any rent reviews
• The inclusion of any free periods
• The inclusion of any rent suspension clauses

The LTA 1954 sets out how the terms of a renewal lease are to be determined by the court in the absence of agreement upon them between the parties. You can read all about that in our guide on how the court’s approaches that HERE

In very general terms, the starting point for the terms of the renewal lease are the terms of the lease that is being renewed, with the onus being placed on the party seeking to depart from those terms to convince the court why. The schedule of unagreed terms will list the terms that remain in dispute and will also include the wording that each party proposes for each of those terms with its reasons in support. The contents of this document dictate the points that will need to be addressed in witness statements and expert evidence. Once finalised, the schedule of unagreed terms must be filed at court.

The parties may at this point pause again to undertake some form of alternative dispute resolution to try to reach a settlement. One popular option in commercial lease renewal cases pursuant to the 1954 Act is Professional Arbitration On Court Terms, known as PACT. PACT is much quicker and cheaper than going to trial to determine the outstanding terms of the renewal lease.

It’s overseen by an experienced RICS registered surveyor agreed upon and appointed by the parties. That person can act as either an arbitrator or an independent expert. They are usually appointed as an arbitrator and will make a binding decision on the outstanding terms of the renewal lease having regard to submissions made by the parties and their experts on paper. No hearing is involved and a decision can be obtained within months.

If PACT isn’t pursued, the next direction will be for the parties to produce witness statements of fact. The witness statements will set out the parties’ position on the outstanding terms of the renewal lease in more detail than the schedule of unagreed terms. The aim being to convince the court to adopt that party’s wording in the new lease. A party seeking to depart from the terms of the original lease will need to justify to the court why that should be the case. The witness statement is their opportunity to do that.

Witness statements will not address issues which require specialist input, such as on rental valuation, which is the job of the expert. The directions timetable will require the parties to exchange their witness statements at the same time so that neither party has the advantage of seeing others before finalising their own. The parties must also file their witness statements at court at that time. A party who fails to exchange and file on time could potentially be prevented from relying upon any witness evidence at trial. Witness statements can take a while to prepare, so careful planning is a must.

After witness statements are filed the next direction will be for expert reports to be prepared. In very broad terms, this will involve a Lease Advisory professional examining the local market to compile a list of comparable evidence which they will use to help provide an expert opinion on what the rent payable under the renewal lease should be. The comparable evidence might include the terms of any renewal leases completed in the local area recently.  It could also include the terms of new lettings, or the rent that has been determined via a recent rent review.

If an application for the court to determine an interim rent has been made, the experts will also set out their opinion of what level that should be set at in their reports. Following the exchange of expert reports the directions will usually require the experts to put questions to one another about their reports, and to speak to try to narrow any issues that they disagree on. The experts will then be required to agree a joint statement to confirm to the court the points they agree upon those that they don’t.

By this point there will be a draft lease in agreed form, save for the terms that are still in dispute. Those terms will be set out in the schedule of unagreed terms and the parties positions in relation to each of them will be supported by their witness statements and their expert reports. Consequently the court will have a clear picture of the arguments that are to be made at trial, and so will the parties. Unopposed lease renewals rarely get this far.  The parties often reach a compromise, with negotiations continuing throughout and offers being made back and forth. If the parties still can’t agree terms they will need to prepare for trial, which will be held on a date already determined by the court.

Preparation for that trial will involve the parties filing Pre-Trial Checklists and agreeing a Trial Bundle of all of the documents that the court will need available to understand and hear the claim. The Pre-Trial Checklists provide the court with additional important information, such as details of each parties’ legal representatives, and the identities of the witnesses and experts, as well as whether all directions have been complied with.

A trial timetable will also be agreed in advance setting out the order that the hearing will follow.

The parties will usually have instructed counsel some time prior to this to allow them sufficient time to prepare for the hearing and to advise on any points that they feel need consideration or further explanation. An experienced barrister specialising in commercial landlord and tenant law should always be instructed to handle the advocacy at trial in an unopposed lease renewal.

There are a number of barristers chambers who specialise in matters such as these, and we work with most of them. In advance of trial, the barristers will prepare “skeleton arguments” setting out a summary of the submissions that they will make at the hearing on behalf of their respective clients. Those must be filed at court and served on the other party in advance of trial.

It is not uncommon for terms to be agreed the night before trial, or even at the steps of court, but if not the trial will go ahead. The judge will have read the trial bundle prior to the start of the hearing, including the case summary, witness statements and expert reports. They will therefore be well placed to understand the context of the submissions made by the barristers in support of the position adopted by their respective clients, and the questions that they put to the witnesses and experts.

The judge will not make a decision on the day.  It often takes several months for a decision to be made. That is because the judge will do so in writing setting out the decision that they have reached on each of the terms of the renewal lease that they were asked to determine, and why.

In its decision the court will make an order for the existing tenancy to come to an end, and for a new tenancy to commence on the terms that it has determined. The parties will be bound by that order, meaning that the landlord must grant and the tenant must take a new lease on the terms ordered by the court, unless they agree in writing not to be bound by it, or if the tenant asks the court to revoke the order.

A tenant might ask for the order to be revoked if it does not want to take a new lease on the terms determined by the court. If it wants to have the order revoked, a tenant must file its request within 14 days of the court order. If the order is revoked the existing tenancy will continue for a further three months and three weeks, after which the tenant will have to leave.

During the entire lease renewal process, and separate to the formal court requirements, the parties, or their Lease Advisory professionals, should continue to negotiate. The court process described above should hopefully influence those negotiations, narrowing the points in dispute between them until they reach agreement. Once that happens the new lease can be completed, at which point the claim can be dismissed quite easily via a short consent order which is signed on behalf of both parties and filed at court.

If, during the course of this process, the tenant decides that it would no longer like to take a new lease of the premises it can discontinue the proceedings. If it does that it is likely to be liable for the landlord’s costs, and the existing tenancy will continue for a period of three months before expiring.

As we’ve set out, unopposed lease renewals very rarely get as far as trial. The process summarised above provides a solid framework for the parties to follow, which usually allows them to iron out their differences and come to terms without the need for too much court intervention. Landlords and tenants need to be aware that there can be very harsh penalties for failing to comply with the court directions however.

Those can include being denied the right to rely upon witness or expert evidence at the court hearing, or to take part in it. Having a pro-active professional team helps to avoid such sanctions, and to get the terms of the new lease agreed and completed, without the need to go to trial.

We work closely with our clients and the Lease Advisory professionals appointed by them to navigate the lease renewal process. We make settlement offers to bring the parties closer together and to protect our clients on costs. We connect our clients with specialist experts and barristers to ensure that they get the best advice. Our Real Estate team handle the drafting of the renewal lease, and our Property disputes team handle everything else.

We’re always on hand to help our clients to make commercial decisions, agree terms, and avoid the need to go through this process wherever possible. And when terms can’t be agreed we ensure that our clients satisfy their obligations to the court whilst ensuring that they present their case in the best way possible.