1 Procedure on Rent Review

(a)Demand for Arbitration

6.111 Section 12(1) of the 1986 Act gives either landlord or tenant the right to initiate a rent review by serving notice in writing on the other demanding that ‘the rent to be payable in respect of the holding as from the next termination date shall be referred to arbitration under this Act’.

6.112 The date specified in the demand, and from which the reviewed rent is to be payable, must be the next termination date following the date of the demand, ie the date on which the tenancy could have been determined by notice to quit given at the date of the demand.¹⁹⁵ This will be the next ensuing contractual term date following the expiry of 12 months from the date of demand. So in the case of an annual Lady Day tenancy, a demand for arbitration seeking a review from 25 March 2016 would have to be served (at the very latest) on 24 March 2015 – this is the last date on which a valid notice to quit could have been given terminating the tenancy at Lady Day 2016.¹⁹⁶

6.113 The 1986 Act provides for reviews at three yearly intervals, and so in practice a demand for arbitration must be made during the second year of the review period if the rent is be increased at the end of the third year. It follows from the requirement that review take place from the next termination date of the tenancy,¹⁹⁷ that the statutory procedure prima facie has no application to fixed term tenancies, unless a ‘break’ clause is included. In the absence of a break clause the latter have one (fixed) termination date, on which the term will expire by effluxion of time, and following which the tenancy may continue as a yearly tenancy under the 1986 Act.¹⁹⁸ It follows that a statutory review could be obtained on effluxion of a fixed term by serving a demand at least twelve months prior to the contractually agreed termination date, but not otherwise during the currency of the term.

6.114 Occasionally the parties may agree that a favourable level of rent be payable, on the understanding that no increase of rent will be sought for an agreed period. The question arises whether such an agreement excludes the landlord’s right to a statutory review at three-yearly intervals. It appears from the decision in Plumb Bros. v Dolmac (Agriculture) Ltd¹⁹⁹ that a collateral agreement not to increase rent will be binding, even if not under seal, if the tenancy and the agreement as to rent are part of a single composite transaction. In this event, consideration supporting the landlords undertaking as to rent may be found in the tenant’s promise to perform the obligations in the tenancy agreement. In each case, however, it is a question to be decided according to whether the tenancy agreement is to be read alongside other documents containing the undertaking in question. In Plumb Bros. (supra) the modern process of construction, relying on examination of the ‘factual matrix’ in which the documents were drawn up, was criticised for placing emphasis on the subjective intention of the parties. The true approach is to determine objectively the intent of the parties from the documents themselves, in the light of the circumstances surrounding the conclusion of the composite transaction.²⁰⁰ If a promise to defer any rent increase is unsupported by consideration, it will be unenforceable if not under seal.

(b)Withdrawal of demand for arbitration

6.115 If either party serves a demand for arbitration, thus setting in motion the statutory review procedure, the other party cannot be denied a review by the later withdrawal of the demand. In Buckinghamshire County Council v Gordon²⁰¹ it was held²⁰² that a notice, once given, acts as a ‘trigger’ which starts the statutory procedure, and an arbitrator has jurisdiction unless the procedure is ended either by agreement, or by failure to apply for the appointment of an arbitrator in good time (see below).

(c)Severance of reversionary estate

6.116 By virtue of the rule in Jelley v Buckman²⁰³ the severance of the landlord’s reversionary estate does not bring separate tenancies of the severed parts into being. The original tenancy agreement subsists, the only difference being that the reversion expectant on its determination is divided and vested in different persons. This has implications for rent reviews. Similarly, the partition and severance of the tenant’s leasehold interest does not create separate holdings with separate tenants for each.²⁰⁴

6.117 Following severance, the rent payable for the holding may have been apportioned among the various reversioners. Unless the tenant expressly recognises (for instance as party to the apportionment) the creation of new tenancies of parts of the holding, mere apportionment of rent will not create a new tenancy of any severed part of the holding.²⁰⁵ In Stiles v Farrow²⁰⁶ it was held that the holding must be regarded as still subject to one contract of tenancy, and that the rent could only be reviewed as to the whole holding. Separate demands for arbitration of the apportioned rent, payable to the purchasers of part of the reversionary estate, were there held to be invalid.

6.118 It follows that to obtain a rent review under s 12 all reversionary owners must join together in demanding arbitration in accordance with the Act. The anomalous result is that while landlords must act jointly to obtain a rent review, they have a separate statutory right to serve notice to quit their severed portions of the original holding (conferred by s 140 of the Law of Property Act 1925).²⁰⁷ Section 140 of the 1925 Act does not assist the landlord on rent review, as it merely apportions contractual rights among owners of severed parts of the reversion, whereas the right to seek a rent review is a statutory incident of ownership conferred by s 12 of the 1986 Act.²⁰⁸

6.119 If arbitration is required, it follows from the above that reversionary owners must also act together in taking subsequent steps, eg in applying to the RICS for the appointment of an arbitrator.

(d)Date of reference for valuation purposes

6.120 The arbitrator is directed by s 12(2) to determine what rent should be properly payable for the holding at the next termination date following the date of the demand for arbitration.²¹⁰ The valuation provisions (described below) must therefore be applied by the arbitrator in accordance with the facts obtaining at the next termination date, when the reviewed rent will take effect. Prior to the introduction of the 2006 reforms, the arbitrator was required to value the rent properly payable at the date of the reference to arbitration. This was not only problematic, as there might be a considerable period of time between the arbitrators appointment and the rent taking effect, but it also meant that ascertaining the date of the arbitrators appointment was of critical importance for applying the valuation criteria. The not inconsiderable learning devoted to this issue in the past is now of academic interest, as the date of the arbitrators appointment has less significance under the scheme of the Arbitration Act 1996. Where the arbitrator is appointed by the RICS, his appointment will be perfected when the President of the RICS executes his instrument of appointment, and it was further held in University College, Oxford v Durdy²¹¹ that receipt of notice of the appointment by the parties is not necessary to perfect it. Where the arbitrator or third party is appointed by agreement of the parties the position is different: the appointment is only perfected when s/he has accepted appointment and all the parties have been notified accordingly – in other words when the appointment has become contractually binding.²¹²

(e)Lapse of demand for arbitration

6.121 By virtue of s 12(3) of the 1986 Act a demand for arbitration will cease to be effective on the next termination date following the date of the demand unless, before the terminaion date, either:

(i)an arbitrator has been appointed by agreement between the parties; or

(ii)an application has been made to the President of the Royal Institution of Chartered Surveyors for the appointment of an arbitrator.²¹³

6.122 If the rent has not been agreed as the next termination date approaches, or if the appointment of an arbitrator or third party has not been agreed and concluded, it is therefore essential to preserve the right to a review by making application to the RICS for the appointment of an arbitrator.

6.123 If the appointment is by the President of the RICS, there is no necessity for the arbitrator to accept appointment, or for the parties to be notified of appointment, prior to the termination date.²¹⁷ If the parties have reached agreement as to the appointment of an arbitrator or third party, on the other hand, it is necessary to ensure that enough time is left to ensure that the necessary steps are taken to perfect the appointment before the next termination date ie for the arbitrator or third party to accept his appointment and for the parties to be notified of the appointment. Once agreement has been reached, this closes off the possibility of an application to the RICS for an appointment, as the power of the latter to appoint an arbitrator only apples ‘in default of agreement’.²¹⁸ If a third party adjudicator is to be appointed to review the rent, and not an arbitrator, this needs to be done at the earliest opportunity – and at the latest at least 12 months before the intended review date, if the right to go to arbitration is to be preserved.²¹⁹