This blog was written by TFA Chief Executive, George Dunn.
Introduction
A recent rent review arbitration award on a Farm Business Tenancy (FBT) has highlighted the benefit of using the RICS Simplified Arbitration Scheme (SAS) for determining these types of dispute. Given the common law position that arbitrations are confidential, specific details of the dispute cannot be reported but this article sets out the general position in the case as an incentive to others to consider using the SAS against the standard route to arbitration.
Background to the RICS Simplified Arbitration Scheme
Formal arbitration, although intended to be a better alternative to court, has become adversarial, expensive and cumbersome. However, the SAS is designed to be a much more informal and relaxed procedure at lower cost whilst providing both parties with reasonable opportunities to have their say.
If both parties agree to use SAS, arbitrators will sign up to a fixed timetable and costs regime, with the aim of reaching a decision within 28 days, at a maximum cost to each party of £2,000. The arbitrator will only charge for 3 days work at £1000 per day (plus VAT). Although discouraged, if the parties choose to have an in-person hearing, the arbitrator may charge an additional fee of up to £1000. These costs will be shared equally by the parties, and each party will pay their own costs regardless of the outcome. For more information about the SAS, click here.
The Case
The tenant, who farms a 350 cow dairy holding in Cornwall under an FBT with substantial tenant’s investment and burdensome repairing obligations, was represented by Jo Maynard Ltd. The arbitrator received submissions from both the landlord and the tenant and took advantage of a site visit of the holding to inform his deliberations.
The passing rent for the holding was approximately £92 per acre. The arbitrator considered evidence of two comparable holdings that had been recently let under tender. The first, a smaller holding, was let at about £165 per acre. The second comparable was a farm of approximately 190 acres which was let following a tender at a starting rent of around £120 per acre but set to rise to about £170 per acre once the farmhouse was made habitable by the Landlord.
In submissions for the arbitration, the landlord proposed a rent of approximately £155 per acre whilst the Tenant proposed a rent reduction to approximately £89 per acre.
In his award, the arbitrator focused on the evidence from the two comparable holdings and made various adjustments to analyse how they should inform the rent payable on the subject holding. Following that analysis, the arbitrator arrived at a rent figure for the holding of circa £106 per acre, an increase of 15% .
Conclusion
This was a relatively straightforward case of a genuine difference of opinion between the landlord and the tenant as to the proper amount of the rent payable for this FBT and where the significant investment made by the tenant and the onerous repairing obligation imposed by the tenancy agreement, were correctly reflected in the award . With formal arbitrations often costing tens of thousands of pounds in addition to the costs of the parties, using the SAS provided a more cost-effective and efficient process for reaching a conclusion. The SAS also provided a much less adversarial environment with both parties being able to submit their cases on paper and, without the need of the hearing, the arbitrator was able to reach a reasoned conclusion which both parties were happy to accept.
Related topics:
