In place of strife

Very often the best form of alternative dispute resolution is dispute avoidance – and the best form of dispute avoidance is very often proper communication between parties to a transaction. In the commercial real estate world over many years, much time, money and energy has been wasted by landlords and tenants in dealing (or failing to deal properly) with applications to assign or sublet leasehold interests in commercial property.  

This issue is an important one. In recent times, commercial property has seen institutional and international capital flooding into it, and those landlord owners need to protect capital values. Tenant occupants, meanwhile, are seeking greater flexibility in exiting or entering the market where property cost is, after staff costs, the major and largely inflexible business overhead.

The law in this area has been reasonably well settled since the introduction of the Landlord and Tenant Act 1988, and there are numerous cases serving to illustrate how the law should be applied in practice. Despite that, the number of disputes (both before and after the papers get into the hands of lawyers) only seems to grow.

Apart from the obvious desirability for the parties of avoiding the cost of disputes, swift resolution is in the interest of the landlord. This is because of the risk of an award of damages under the act for unreasonably refusing to consent to an assignment or subletting. And it is in the interest of the tenant wanting to get early clearance for a deal before it risks losing the third party to another property, or having to bear unnecessary rental costs for too long a period. The length of the court’s backlog means that resolving such disputes by traditional litigation will often conflict with their common interest.

It was against this background that we decided that the industry needed to take steps to help itself. If it recognised this common interest and adopted procedures which focused on the objective of early resolution, the number of disputes (particularly those over process rather than substance) would hopefully fall dramatically. At the same time, we recognised that arbitration (as opposed to litigation), could provide a speedy and cost-effective solution, and an assurance of resolution by highly experienced property specialists if all else (including mediation) failed.

We shared our thinking with Guy Fetherstonhaugh and Jonathan Karas, two eminent leading real estate silks at Falcon Chambers, who had just launched the Falcon Chambers Arbitration Scheme. Out of our discussions emerged the Protocol for Applications for Consent to Assign or Sublet, which we have launched via our dedicated free website (www.propertyprotocols.co.uk).

The idea is for the protocol to be used by professionals as a ready reckoner for reasonable behaviour when making or dealing with applications. Ideally, it should be incorporated into leases and other binding documents as a code which the parties agree to follow, and to be taken into account when assessing whether they have complied with their contractual and statutory obligations.

We hope that the protocol will serve as the first in a series of similar ‘best practice’ documents, designed to smooth landlord and tenant relations and to relieve commercial differences of much of their heat (and time and expense). We have also invited distinguished colleagues in this field to feed in their own thoughts as to what other protocols might be devised.

The early signs are encouraging and we are gratified to note that the chief executive of the British Property Federation has already warmly welcomed the protocol.  

Our initiative benefits the real estate industry and those who operate within it. The concept, however, is of general application.

Improved communication, dispute avoidance and early resolution of disputes are objectives to which most in the business world would subscribe. We encourage the wider business community, and the legal profession as a whole, to grasp the opportunity.

 Nicholas Cheffings, is chair and Mathew Ditchburn a partner at Hogan Lovells International