How arbitration fits into rent review strategies
When a rent review clause includes the option to appoint a third party, landlords and tenants may apply to the President of the RICS for an arbitrator or expert. While there are differences between the two, in this article, we’ll use the term ‘arbitrator’ for simplicity.
The key to success is having a sound rent review strategy based on transactional evidence and an uncontroversial reading of the lease terms providing a rental valuation. The strength of your valuation will inform negotiation tactics and cost risk management.
If you have good evidence, your position may be more assertive. However, the position is usually more opaque with both parties having a plausible argument. It is in this situation that taking a measured approach to appointing a third party can be effective. In this blog, we’ll look at the circumstances more closely. Arbitration is not related to the previous conduct [1] of either party under the lease. It is not a forum for airing grievances. Instead, both sides must concentrate on justifying their proposed rent based on the lease terms and valuation evidence. (For more on rent review valuations, click here.)
[1] A common mistake is thinking arbitration does not consider other legal issues such as parties’ affordability or their performance under the lease. Arbitration is structured process with several stages where each party needs to demonstrate their valuation.
The arbitration process in rent reviews
Arbitration is not a quick fix or a role of the dice —it’s a structured process that can span many months. Even if you did not want an arbitrator to make a final decision, there are key stages of the process you could still follow.
The arbitration process usually comprises the following stages –
1. Applying for a third-party appointment
- If both parties agree on an arbitrator, they can appoint one directly. If not, they apply to the RICS.
- The application costs around £500 and may take several weeks to process.
The application to appoint a third party doesn’t mean the rent review will go to a full hearing. Often, it signals confidence in a party’s valuation or is a technique used to pressure the other party and to encourage negotiation.
2. Arbitrator appointment and directions
- The next stage is the appointment of the arbitrator. A fee is charged to open their file and prepare to issue set procedural directions.
- The arbitrator’s directions will outline the timetable. Identify other instructions and include key deadlines for submissions such as –
- A statement of agreed facts to be agreed between the parties.
- A submission explaining how the property should be valued.
- A response to the other party’s submission.
This stage usually prompts serious negotiations, as both parties face the cost of surveying and valuation reports. Consequently, it can bring both parties to the table to make their best and final offer. Through experience it is at this stage that one party may fold if they are bluffing.
3. Submission and response
- Each party typically has four to six weeks to submit their valuation.
A further four weeks are given to respond to the opposing submission.
Whilst most settlements occur before this stage, you can still prepare a better offer if one of the submissions highlights weaknesses in your case. The benefit of providing a new offer closer to the opposing side is that you may be able to avoid an even worse result or a cost award against you. A more generous offer can allow the other side to feel an emotional victory and curtail any further delays.
4. Legal disputes over lease terms
- If disagreements arise over lease wording, both parties may need legal advice.
- This can significantly increase costs, making early settlement even more attractive.
The right mindset for rent review arbitration
Arbitration is not a quick fix or a role of the dice —it’s a structured process that can span many months. Even if you did not want an arbitrator to make a final decision, you could still allow the process to reach key stages.
The best rent review strategies focus on:
- Risk versus cost – understanding when to push forward and when to negotiate, keeping in mind that costs are not incurred at the outset.
- Strength of rental evidence – If you have a strong valuation case from the start, you may choose to push forward. However, even with weaker evidence, you could begin the process to encourage movement from the other side. In this case, you might decide to end the process early, before submissions are due.
- Strategic negotiation – using each stage to assess the likelihood of a favourable outcome.
A well-planned approach will help you manage costs, reduce risks, and increase the chances of reaching a fair settlement before arbitration runs its course.
Need expert advice on your rent review strategy?
Simon Bradley Property specialises in rent review strategies, helping landlords and tenants confidently navigate arbitration. Get in touch today for expert guidance and support tailored to your needs.
