The pandemic has had a significant impact on commercial businesses, with a legacy that will last long after lockdown ends. Without doubt, a dysfunctional and disrupted commercial property sector will have far-reaching implications for UK GDP and the future stability and growth of the economy.
A new code of practice
The situation has created unexpected tensions between commercial landlords and tenants, with the UK government anxious to avoid ongoing conflict and strife, especially once the current moratorium ends. The government is therefore encouraging parties in dispute to use independent mediation by adopting a voluntary code of conduct with the following key messages.
- It is in the interests of landlords and tenants alike to do everything reasonable, including collaboration, to ensure otherwise viable businesses continue operating through the period of recovery from the pandemic.
- The aim of the code is to support those discussions by communicating best practice through an evaluative, but not determinative, process.
Support for the code comes from across the property professions, including the organisations that formed the code's steering group; namely the British Chambers of Commerce, British Property Federation, British Retail Consortium, the Commercial Real-Estate Finance Council Europe, retail representative body REVO, RICS and UK Hospitality, together with active support from some 20 trade associations. This diverse group of participants is unanimous in the belief that help is required immediately.
Recommending that landlords and tenants act as economic partners rather than opponents, the code requires transparency and collaboration, with both parties acting reasonably and responsibly to help each other survive and prosper. It also advocates that, where a commercial property dispute results from the impact of the pandemic, the parties should use independent mediation to reach a satisfactory settlement.
- landlords and tenants can make new arrangements to help them through the crisis and its aftermath, although every landlord and tenant relationship is different
- in seeking an arrangement and any changes to rental payments, both parties should act in good faith
- tensions are high and, without help, many negotiations will stall if either party becomes entrenched in its position.
"This diverse group of participants is unanimous in the belief that help to resolve disputes is required immediately"
Process précis
- Evaluators overseeing the process are property professionals and business leaders experienced in their market place and in resolving disputes.
- Independent rental evaluation is a distinct process to tackle the tensions now arising between landlords and tenants as owners and occupiers.
- Evaluators can rely on support from other business professionals such as accountants to get to the heart of any issues outside their expertise.
- RICS-appointed evaluators have been specifically trained to provide this service.
- Any party embarking on the evaluation process will not have a professional imposed on them, and there is flexibility to ensure the right person with appropriate expertise is appointed.
- Evaluators are selected so they are free of conflicts of interest and available to support both parties equally.
- Evaluation promotes a structured, controlled environment and process to achieve a fair resolution.
CRIES and the evaluator's role
To help landlords and tenants meet the code's objectives, RICS' Dispute Resolution Service has established the Commercial Rental Independent Evaluation Service (CRIES). CRIES enlists senior and highly experienced RICS professionals working in the commercial property sector to provide an impartial, informed and robust form of mediation as independent evaluators.
Where a landlord and tenant are challenged to map out their future, the evaluator is appointed to help both sides equally by drawing on their own business expertise, negotiating abilities, dispute resolution experience and common sense. Thus they bring more to the table than traditional mediators, who are often not expected to possess this level of insight and experience.
- They will set out the objectives of the process and act fairly and impartially between the parties, adopting suitable procedures and avoiding unnecessary delay, putting an appropriate infrastructure in place to resolve issues arising.
- The parties are always free to agree on the powers of the evaluator, but once such powers are granted, they should be respected by each party and where possible evidenced in writing, such as an email exchange or another form of recorded agreement.
- Speed will be of the essence, but the parties must be made to feel comfortable in a positive environment with ground rules appropriate to the issues, and where the process and any agreement remain confidential.
- The evaluator will ensure that all relevant documentation is available to explore what the parties expect to achieve through the process. As well as correcting and expanding the discussion as appropriate, the evaluator will also invite useful questions, particularly in the initial stages, so that the full extent of the dispute can be identified.
- Each party should be given a reasonable opportunity by the evaluator to put their case and deal with that of their opponent, with both encouraged to listen and understand the other.
- The evaluator should ensure the outcomes can easily be understood by the parties and evidenced in writing at the time of any agreement. Anything that is overcomplicated is likely to be brushed aside or avoided.
- Time limits will also be set by the evaluator, and they can take notes as appropriate for their own benefit; these notes cannot legally be enforced or required to be disclosed.
- The position of each party as it changes or evolves should be identified by the evaluator, who should also attempt to identify common ground, and highlight on a rolling basis the areas that remain unresolved to establish where compromise or settlement can be reached.
- The evaluator will always be non-threatening, use simple language and seek to separate fact from opinion and even fiction. In addition, they will demonstrate that they are a good listener and be prepared to take a lead by offering suggestions, especially if negotiations slow or fail to foster constructive dialogue.
- At any time during the process, the parties should be allowed to withdraw from the evaluation hearing to discuss matters arising.
- It should be accepted that settlements may be for the short, medium, or long term.
- Where the dispute may involve areas outside the evaluator's expertise, such as accounts, financial records, and legal issues, the parties are to be advised of such limitations, and if additional expertise is required, a specialist's involvement and how their fees are to be paid must be established and agreed in advance, or as soon as this becomes apparent.
- Both sides will bear their own costs – unless there is agreement between them to be assessed on an alternative basis – and they will pay half of the evaluator's fees each; these fees will usually be on an hourly or day rate, plus disbursements and VAT.
- There is no provision for costs and fees to be determined by the evaluator, but they could be given such powers if the parties agree. If so, the provisions of sections 59–65 of the Arbitration Act 1996 should apply.
Landlords and tenants are encouraged to use this new service to resolve what are likely to be serious and complex confrontations – both now and for some time in the future – and by doing so, inject new life and balance into the marketplace.
Related competencies include: Conflict avoidance, management and dispute resolution procedures, Landlord and tenant