2 Frequency of rent reviews
6.124 The general rule is that statutory rent reviews can only take place once every three years.
(a)The Three Yearly Review Cycle
6.125 The general principle that rent reviews should be conducted no more frequently than every three years is contained in Sch 2, para 4 to the 1986 Act.
This provides that a demand for arbitration on rent (often referred to as the ‘trigger notice’) shall not be effective if the next termination date following the date of the demand falls earlier than the end of three years from either:(i)the commencement of the tenancy;
(ii)the date on which there took effect a previous increase or reduction of rent (whether pursuant to arbitration or not); or
(iii)the date as from which there took effect a previous direction of an arbitrator or third party220 under s 12 that the rent should continue unchanged.
6.126 It follows from (ii) and (iii) (above), that an agreed increase or reduction in rent will trigger the three-year cycle and prevent further review for three years thereafter. Where no increase or reduction is made, and a standstill rent agreed, the three-year bar will only be triggered if this is incorporated in an arbitrator’s award or third party determination (and not if simply negotiated and agreed without recourse to arbitration or the determination of a third party under the 1986 Act).
(b)Matters Disregarded for Purposes of Three Yearly Cycle
6.127 For the purposes of the three-yearly review cycle, certain minor adjustments to the rent and/or other terms of the tenancy will not trigger the three-yearly cycle afresh, and are to be disregarded for the purpose of calculating when a new rent review can be undertaken.221 These rules are somewhat technical in their application, but can be important in practice. A tenant may wish to trigger a review in a falling rental market, for example, while the landlord may wish to delay a rent review to secure a higher rent than current market conditions would support.
Conversely, in a rising market the landlord may wish to trigger a review at the earliest opportunity, while the tenant may wish to delay a review.6.128 The following are to be disregarded when calculating the three years cycle:
(a)A change in rent where an arbitrator settles the written terms of the tenancy under s 6 and directs that the rent be adjusted to reflect his award, and similarly where he does so following an arbitration to consider whether the tenancy agreement is inconsistent with the ‘model’ clauses’ as to fixed equipment.222
(b)An increase in rent following the completion of landlord’s improvements, whether obtained by arbitration or by agreement.223 Similarly, a reduction in rent agreed by the parties, in consequence of a change in the fixed equipment provided on the holding by the landlord, will not activate the three-year bar. By a ‘change’ in the fixed equipment provided on the holding, is meant a change in the equipment provided itself, ie its removal or (in the case of a building or other structure) its removal or demolition, but one which leaves the holding otherwise unaffected. An agreed reduction in rent consequent upon the surrender of a dwelling or other building to the landlord is therefore not strictly a ‘change’ in the fixed equipment provided, and will activate the three-year bar on further reviews. So, in Mann v Gardner224 a small reduction of rent by £100 (out of a total rental of £21,650), was agreed in consideration of the surrender of a farmhouse. This was held not to constitute a change in fixed equipment,225 with the result that a rent review for the whole holding was precluded for three years thereafter. The surrender of a cottage or farmhouse, with the land on which it stood, constituted a change in the holding itself. This favoured the landlord, who wished to withdraw from the rent review in a falling market.
(c)A decrease in rent following repossession by the landlord of part of the holding (whether obtained pursuant to s 31 or a resumption clause in the tenancy) – see s 33 of the 1986 Act.
(d)New tenancy of a severed part
Severance of the landlord’s reversion does not of itself create new tenancies of the severed parts, neither does partition of the tenant’s leasehold interest.226 Following severance, however, the tenant may enter into fresh contracts of tenancy with the owners of the severed portions of the reversionary estate. To prevent this triggering the three-year review cycle, Sch 2, para 5 provides that the period of review shall be calculated by reference to the commencement date of the original tenancy and its subsequent rent reviews, but only (note) when the rent payable in respect of the new holding represents merely the ‘appropriate portion of the rent payable in respect of the original holding’. The appropriate portion, which is not defined, falls to be determined by reference to the size of the new holding compared with the old, and its relative productive capacity compared to that of the original holding.
(e)Adjustment of boundaries or terms of tenancy.
Any agreement whereby the boundaries of the holding are adjusted, or which provides for any other variation of the terms of the tenancy (exclusive of those relating to rent), shall not be treated as giving rise to a new contract of tenancy for these purposes, and so will not start the three year cycle afresh.227 By an adjustment of boundaries is meant ‘an arrangement, putting in order, harmonisation or adoption of the boundaries between the holding and some other property’.228 In Mann v Gardner229 it was held that adjustment of boundaries was ‘clearly directed towards minor adjustments in boundaries without any substantial alterations in the extent of the holding involved’. In Mann v Gardner the area of land surrendered by the tenant and removed from the tenancy was small – just the farmhouse and its curtilage. But it was in the centre of the holding, and not on its boundary. This was therefore construed not as an adjustment of boundaries, but rather as the surrender of part of the holding – and this triggered the three-year cycle afresh.
The same issue arose in Secretary of State v Spencer,230 a case in which the opposite had occurred – namely, a small area of land (1.156 acres) was added to the holding. In Spencer it was successfully argued that adding land to the tenancy was a ‘variation of the terms of the tenancy’ if the circumstances were such that the parties had not intended the addition of the land to operate as an implied surrender and regrant of the tenancy.231 This did not, therefore, start the 3 year cycle afresh. This point had not been argued in Mann v Gardner.(f)Surrender and Regrant.
Schedule 2, para 7232 applies where there has been an express or implied surrender and regrant following the addition of land to an existing tenancy. The status of the original tenancy under the Agricultural Holdings Act 1986 is preserved in this situation, notwithstanding that the new tenancy has been entered into after the farm business tenancy legislation came into effect.233 Where this provision applies, the three yearly rent cycle will be preserved, and the creation of a new tenancy by surrender and regrant will not trigger the cycle afresh.234 The three yearly cycle will therefore be calculated by reference to either the commencement of the previous tenancy, the date when the rent under the previous tenancy was last increased or reduced, or the date when an arbitrator awarded a standstill rent for the previous tenancy, as the case may be.235 For this saving provision to apply, the new tenancy must be granted to the person who (immediately before it’s grant) was the tenant of the holding, or of any agricultural holding which comprised the whole or a substantial part of the land comprised in the holding, and the rent payable under the new tenancy must be unchanged from that under the old tenancy, disregarding any increase or reduction attributable to an adjustment of the boundaries of the holding.236 Whether the land in the original tenancy comprised a ‘substantial’ part of the land now comprised in the new tenancy is determined by reference to either its area or value.237 If the addition of substantial areas of land, or of land with substantial value, results in a situation where the land in the new tenancy cannot be said to be comprised in substantial part of the same land as in the old tenancy, then the saving provision will not apply. In that situation the rent cycle will be triggered and a statutory rent review will be impermissible until three years have elapsed from the commencement of the new tenancy. Similarly, it should be noted that the saving provision does not apply where there is a change in the identity of the tenant, for example where an additional tenant is added to the tenancy on the grant of the new tenancy.