P.A.C.T. PROCEDURES Christopher M Ray FRICS FCI Arb
P.A.C.T. (Professional Arbitration on Court Terms) Conceived by RICS and Law Society Launched in 1997
P.A.C.T. Working Party (RICS PLA Law Society) Objective is to give PACT a new lease of life by increasing awareness and understanding among different audience segments: 1. Reference guide for practitioners 2. Reference guide for professional advisers 3. Simple explanation for users
What is P.A.C.T? It is a form of alternative dispute resolution (ADR) whereby the determination of all or some terms of a lease renewal are delegated to an independent third party, who may act either as an arbitrator or as an independent expert * * Not to be confused with expert witness
What are the principle benefits of P.A.C.T? Decision maker has relevant experience and knowledge in the subject matter Procedure is flexible and parties have control Proceeds quickly or at a pace agreed by the parties Greater certainty in terms of costs
When can P.A.C.T. be used? 1. Tenant wishes to take up new tenancy and landlord does not oppose 2. One party has made application to the court to fix the terms of the new tenancy (parties can agree to withhold making an application, but watch out for timescales) 3. Both parties agree to refer issues which are not agreed to an arbitrator or independent expert
Issues that can be determined using P.A.C.T. Duration of new lease Other terms (e.g. repair, alienation, service charge, decoration, rent reviews, break clauses, etc.) Rent Interim rent Drafting
Initiating the P.A.C.T. procedure In court procedure Starts with consent order signed by both parties which includes details of: Agreed issues Issues not agreed Whether to use arbitration or expert determination to determine issues not agreed
Model consent orders Model order 1 - for referring everything to arbitration Model order 2 - for referring initial rent to arbitration or expert determination Model order 3 - for referring issues other than rent Model order 4 - drafting
Out of court PACT Available at any time up to the point where either party makes an originating application to the court Each party must agree to withhold making such an application VITAL, that the tenant does not lose its right to make an originating application until the new lease is completed, The tenant therefore needs to be aware of time limits
Whether to use arbitrator or independent expert Suggestions Use arbitration for: Duration Other terms Interim rent
Whether to use arbitrator or independent expert Suggestions Use expert determination for: Fixing the rent Drafting
Appointing a PACT arbitrator or independent expert If the parties cannot agree the identity of their arbitrator or independent expert, they can agree to an appointment by the President of RICS, whether the appointment is for a surveyor or a lawyer
The role of the Arbitrator or Expert Identify the issues to be resolved Determine the issues Issue decision (with reasons if required)
Implementation Agree form of new lease based on PACT outcome Withdraw from further court proceedings If not, apply to court for new tenancy on PACT terms Court order triggers 14-day period during which tenant may apply for order for revocation Model consent order provides that tenant may discontinue PACT and provides for allocation of costs
..and finally 60% of all new leases are for 7 years or less Average duration is 6.4 years Declining number of leases with rent reviews Likely to be many more lease renewals Increasing potential for variety of disputes
..and finally really P.A.C.T. offers an alternative to the courts P.A.C.T. refers decisions to people with expertise P.A.C.T. can be used in a wide range of situations RICS is promoting P.A.C.T. as industry best practice for resolving lease renewal disputes
P.A.C.T. PROCEDURES Christopher M Ray FRICS FCI Arb
P.A.C.T. PROCEDURES CHRISTOPHER M RAY FRICS FCI Arb I am hear to spread the word and help all fellow surveyors to earn more fees. I might even be of some assistance to the solicitors amongst you. For those of you who are the clients for whom we surveyors and solicitors are to act I sincerely believe that you will come to look upon PACT as an expedient and cost effective method of Lease Renewal Resolution compared to your experiences within the County Court system. Firstly a survey question? 1. Who here is involved with rent reviews of commercial property? 2. And lease renewals? I am afraid that the rest of you may find the next ¾ of an hour somewhat dull. My fellow professionals, a fact which might surprise you, my company has developed it s own database upon which we record all information relative to retail properties throughout the country. I can search within the 13,000 entries under many categories and feed in the requirement to show me all lease renewals due between say now and March 2013 and the same exercise for rent reviews. It may surprise you to learn that lease renewals out number rent reviews in that period 3:1. Why? The answer is shorter leases, many of which do not contain rent reviews. At this rate, we rent reviews surveyors will shortly be out of work. As it is, how many clients, be that landlords or tenants, want to pay you a fee to agree a nil increase. Our agency colleagues are really not helping us by agreeing lengthy rent review period or tenant only break clauses just to avoid a vacant shop with liability for the rates, repairs, service charge short fall becoming the responsibility of the landlord.
Even if they can agree a term of 10 years, by the time the incentive has been amortised the headline rent falls way below the passing rent. I believe this is a subject that will be considered in greater detail later today. If only we had upward and downward rent reviews our tenant and landlord clients would desperately need us. As it is my rent review work for this coming year has virtually dried up. Does that sound familiar! Having been through at least 3 recessions I could see that this stagnation was heading our way. I thought it was normal practice in the 1970 s to turn the lights off and go home at 4pm and in the 1990 s it was even worse because there were absolutely no deals being done. The fear factor was far great then and I was reminded that we had the Gulf War and inflation. Suddenly today doesn t seen quite so bad. With longer leases then, multiple retail tenants could not just walk away from prime shops without bringing the whole company down. Shorter leases today give them that greater flexibility and indeed power over their landlords. With have seen this put to good effect with tenants offering to extend leases in return for a reduced rents, rent free periods of capital towards their shop fit. My Practice has effected several lease restructures with the likes of C&J Clark, Monsoon, Superdrug and WH Smith. It is quite amazing that the yield shift and increase in capital value that the valuers will apply for a term extended beyond 10 year even if the rent is reduced. So how are we to make a living over the next few years! Lease renewals by negotiated agreement out of court. Here I propose another question How many here have actually presented their evidence in court of lease renewal. Well that s xxx more than Jacqui and I. Oh sure we have all prepared and exchanged witness statements in which we have explained the marvels of zoning just in case the judge, fresh from a marital dispute, has never actually been inside a shop.
Anything that might have been agreed counts for naught as the barristers get to grips with winning the case and boy do the costs start to mount up. Is there any other way? There is if we surveyors can persuade our clients to adopted the PACT procedures. PACT - Professional Arbitration on Court Terms. A completely useless acronym but nobody has thought of anything more descriptive for lease renewals resolved out of court. So how does PACT work? Allow me to present some slides as prepared by Dispute Resolution Service at the RICS: Insert print out of Powerpoint pages.
Compare this with contested lease renewals: the appropriate Section 25 or 26 notice is served and you are likely as a surveyor to be asked to provide the appropriate rental and lease terms perhaps a year before the actual expiry date to be filed on the notice. Can anybody here accurately predict what values will be 12 months later. The lawyers then go off and to and fro on the lease, rarely involving us surveyors until you suddenly get a call which says I need your report by Friday. You meekly ask whether there is an agreed form of lease upon which to base your opinion of value and finally they can not agree the term of years but there are break clauses to be included, rent, the interim rent and all sorts of other matters. In fact very little has been agreed and the draft is a kaleidoscope of coloured tracked changes. You cut and paste from an earlier statement on another case and top and tail your report and somehow find some evidence to support a rental figure but reserve the right to amend it should you actually be called upon at some future date to present it in person to the Judge. The case proceeds without you until said Barrister calls for his conference. I am not telling you anything new, it s the way it has always been, the case is managed by the clients solicitors but if the existing lease is only 5 year old or even 10 what modernisation does it really require? Surely the only matters in the dispute will be the rent, maybe there is a case for an interim rent dispute. These are matters that a surveyor is capable of resolving why refer them to a judge? If there are unresolved terms of the lease that might be better resolved by someone with legal experience then appoint a solicitor to make a determination on the issues as preliminary matters. We have all used the services of Falcon Chambers and their like to resolve a legal issue and proceed according to the opinion provided. Why not appoint a solicitor experienced in handling such matters and I suggest that Jacqui s hourly rate is considerably lower of that of learned Councel. If she and other members of the LPA are proven experts in the field then who better to form a panel to resolve the dispute. Similarly we have the mechanism in place to appoint a surveyor as Expert or Arbitrator to resolve a rent review dispute. Those same surveyors can determine the rent at lease renewal.
As a PACT appointed surveyor I have as either an Expert or an Arbitrator, determined Section 34 Rental Values, Section 24A Interim Rents and various lease terms, and in one case the only issue before me as Arbitrator was whether M W Group Ltd (Mappin & Webb) should act as guarantor to the lease for Watches of Switzerland on a property on Regent Street. I have been appointed by the President upon application of the parties sometimes as a result of a Consent Order or privately by fellow surveyors. So far, the Courts have not directed parties to use a PACT or indeed any other form of alternative dispute resolution. The appointments made to date are either by a private agreement or by a joint application to the court for a Consent Order. The Court is more than willing to grant such an order to remove property cases from their extensive court lists. The Guidance Notes provide you with 4 model Consent Order which will cover every eventuality. So there we have it. All the tools that you need to go to your clients and spread the message that Lease renewals CAN be resolved out of Court efficiently and cost effectively. I hand over to Jacqui Joyce who will present to you the findings of the Property Litigation Association and the solicitor s role in PACT after which we will take any questions you may have.