2 Excluding Statutory Rent Reviews
3.110 If the parties wish to include their own formula for varying the rent, and make special provision as to the timing of rent reviews, they can do so – but only by adopting one of five options set out in s 9 of the 1995 Act.
Their agreement must be recorded in a written tenancy agreement.221 Where the tenancy is oral, the statutory formula with three yearly reviews will apply.3.111 The statutory formula and review procedure will be excluded if the parties have made provision for rent in one of the following forms. In these cases – and these only- they will not be able to trigger a statutory review under Part I of the Act, and will be held exclusively to the terms of their agreement as to rent.
(a)The tenancy is created by an instrument that expressly states that the rent is not to be reviewed during the tenancy.222
3.112 This option may be appropriate where a high initial rent is agreed, perhaps reflecting a rentalised premium element, or where the tenancy is a short fixed term of, say, 3 or 4 years in which the cost of reviewing rent by arbitration would not be worthwhile. The rent in such cases can be renegotiated on the grant of a fresh fixed term (if any) on expiry of the tenancy. Note that the tenancy agreement must expressly declare there will be no rent review – it is not sufficient to merely state a fixed rental for the duration of the fixed term.
(b)The tenancy is created by an instrument that provides that the rent is to be varied, at a specific time or times during the tenancy, by or to a specific amount, but is otherwise to remain fixed223
3.113 This offers the possibility, for example, of fixing a low rental during an initial ‘trial’ period, or to reflect the need for the tenant to invest materials or labour in putting the holding into good heart, and providing for an increase at a fixed point in time to a higher rental for the remainder of the tenancy.
This type of arrangement is unlikely to be widely used in practice, but may be suitable in some short fixed term tenancies. Note that, for this facility to operate so as to exclude the statutory review provisions, the agreement must expressly state that the rent is to remain fixed other than for the one variation specified.(c)the tenancy is created by an instrument which provides that the rent is to be varied, at specific time or times during the tenancy, in accordance with a specified formula which does not preclude a reduction and which does not require or permit the exercise by any person of any judgement or discretion in relation to the determination of the rent of the holding, but is otherwise to remain fixed.224
3.114 The parties are free to adopt a formula which links the rent to some objective criteria provided this does not involve the exercise of discretion in fixing the rent. Adjudication by a third party – such as an arbitrator or mediator – is clearly excluded when this option has been used in the tenancy. The parties could link the rent to (for example) the price of specified agricultural products, or the turnover of the holding. Special care will have to be taken, however, to ensure that no element of third party evaluation or judgement is involved in operating the chosen formula, as this will take it outside the ambit of s 9 and bring into play the statutory review provisions. Note also, that the formula chosen must expressly provide for the rent to remain fixed unless varied in accordance with the agreed formula. A formula which permits an upward only review will not qualify, and will not exclude the statutory review provisions.
(d)The tenancy is created by an instrument that expressly states that Part 11 of the 1995 Act does not apply, and which does not contain any provision that precludes a reduction in rent during the tenancy.225
3.115 This option gives the parties considerable freedom to contract out of the statutory rent arbitration procedures of the 1995 Act, and to have the rent agreed in a manner, and by reference to a procedure, stipulated in the agreement.
The option only applies to agreements concluded after the coming into force of the 2006 Order.226 The parties could, in appropriate cases, stipulate a basis for review similar to that obtaining under the Agricultural Holdings Act 1986. This might be appropriate, for example, where a farm business tenancy is granted by way of exchange to a tenant surrendering a protected tenancy under the 1986 Act. It should be noted, however, that all that is required for the exclusion of the statutory review is that the agreement ‘expressly states that [Part 11 of the 1995 Act] does not apply’: it is not necessary for the tenancy to put anything in its place. It would be permissible for the tenancy to exclude the arbitration mechanism of the 1995 Act, without stipulating an alternative review mechanism or basis of review. The net effect of so doing would be the same as under option (a) above – to fix the rent for the duration of the tenancy. Clearly, this is to be avoided, especially in the case of a long fixed term agreement where either party may legitimately wish to seek review at a subsequent date – in the case of the tenant, for example, when market conditions change or changes in subsidy arrangements reduce the profitability of his farming enterprise, and in case of the landlord to reflect increases in profitability or rental values in the sector. If the statutory arbitration mechanism is to be excluded, therefore, careful consideration will need to be given to alternative bases for valuing the rent on review, and at what periods during the tenancy.(e)The tenancy is created by an instrument that does not contain any provision that precludes a reduction in rent during the tenancy, and makes provision for the reference of rent reviews to an independent expert whose decision is final.227
3.116 If the parties have agreed to exclude the rent review machinery by making provision for an independent expert to adjudicate on rent review, then they cannot switch back into the statutory arbitration mechanism be seeking the appointment of an arbitrator. This is another reform instigated by the TRIG report,228 and emphasises that the statutory arbitration mechanism is intended to be a default measure for those who fail to make contractual provision for the resolution of disputes as to rent in the tenancy agreement. The option only applies to agreements concluded after the coming into force of the 2006 Order.229
3.117 If the rents review terms agreed by the parties do not fall within one of the five categories above, then the statutory rent review provisions will apply. This means that either party will be free to ignore the contractual terms as to review – notwithstanding that they have been freely negotiated and included in the tenancy agreement – and to invoke a rent review on the statutory free market basis, subject to the rules as to timing of the three yearly statutory review.230