How to make landlord-tenant arbitration smoother

It is not uncommon for a dispute over as little as £2,000/year in farm rent to cost the losing party £40,000 or more when that difference of opinion is settled at arbitration.

The process is expensive because it is serious and semi-judicial, can take a lot of time and involve multiple professionals who charge at an hourly rate.

See also: End of farm tenancy – tips on what to watch out for

Commonly used for resolving disagreements in rent reviews over unwritten tenancy terms, notices to quit, and dilapidations and other end-of-tenancy compensation matters, arbitration of complex disputes can take years to resolve.

Even relatively simple matters can take several months.

In common with other forms of dispute resolution, arbitration is also adversarial because it pits one party against the other.

However, there are steps both parties can take to make the process speedier and more cost-effective.

Qualified arbitrator Ruth Farrell, a senior business consultant at DJM Consulting, says it is always important for those involved in arbitration to understand that it is solely a business transaction.

“People do take it quite personally and end up burning quite a lot of emotional energy which is exhausting for everybody and doesn’t help anybody’s health,” says Ruth.

Ruth is experienced in dispute resolution in farm landlord-tenant relationships.

Here she explains the process, how costs can be kept in check and what pitfalls to avoid.

What is arbitration?

Many farmers are familiar with the term arbitration because it is the default dispute resolution provision in tenancy agreements and in the legislation covering Agricultural Holdings Act (AHA) and farm business tenancies (FBTs).

It is essentially an alternative to court litigation, but the term still holds a “fear factor” for many because the process is semi-judicial and can be expensive and emotionally charged.

Applications to appoint an arbitrator are made through the Royal Institution of Chartered Surveyors dispute resolution service, the Central Association of Agricultural Valuers or the Agricultural Law Association.

The arbitrator, who is governed by rules set out in the Arbitration Act 1996, looks at the facts of the matter in dispute to reach a decision in what is a private and confidential process.

“Our role is to put the mechanism in place for an even-handed exchange of evidence and then to assess that evidence impartially,’’ Ruth explains.

During a recent webinar hosted by the Tenant Farmers Association, she used the analogy of a game of football to sum up the process.

The arbitrator acts as the referee who sets the rules if the parties haven’t already agreed them and who watches over the parties for the duration of the arbitration.

“But it is the parties that have to play the game and score the goals by providing evidence to the arbitrator.

“The arbitrator doesn’t at any point descend onto the pitch to play the game and equally the game doesn’t work if the parties don’t play.

“When the game is finished, the arbitrator decides who has won and the quality of the points scored helps the arbitrator to make that decision.”

After the winner is declared, the arbitrator considers the behaviour of the parties during the arbitration to decide who should pay the costs.

Arbitration awards have a legal standing of their own, as Ruth explains. “If one party doesn’t do what the award says they must, the other can take the award to the court for the court to enforce it.’’

Costs

Arbitrators have the power to apply a percentage reduction to cost recovery to reflect the reasonableness of the costs incurred.

However, the default position is that the “loser” must not only pay their own costs but those of the arbitrator and the other party.

“It becomes expensive if you lose,” says Ruth.

“The scale of costs is a massive issue in arbitration – sometimes they become a bigger issue than the cost of the matter that the parties are in dispute over.”

This can result from the parties and their representatives being unfamiliar with the process, therefore the arbitrator has to chase them for responses, or because parties have very expensive legal representation.

When a party has good and sufficient evidence, how expensive their representation is doesn’t make much difference, Ruth suggests.

There are other reasons why costs can spiral.

“Once the arbitration process has started, even raising the white flag and saying you have had enough and want out counts as losing and that means people end up being forced to keep going in the hope that they win and recoup some of the costs they have been exposed to,” says Ruth.

However, costs can be managed, for instance by the parties agreeing on a cap for all or part of the process, such as for submissions or the length of submissions.

The arbitrator also has the power to impose cost caps but only for the recovery of costs, not on the level of expenditure incurred.

“Parties can spend what they like but we can set a cap on what costs they could recover,” Ruth explains.

The conduct of agents can have a bearing on the costs awarded too.

There is an obligation on the arbitrator to avoid unnecessary delay or expense, she adds. “Quite often we are chivvying the parties along.”

Rent reviews

A rent review is one of the most common scenarios on which agricultural arbitrators are asked to rule.

In this situation, the arbitrator should be presented with relevant information about the farm the tenancy relates to, the terms of the agreement, the level of rent each party thinks should be paid and the evidence being relied on for that figure.

It is important the arbitrator be presented with all the facts and evidence, Ruth says.

If, for example, one party states the rent level they think the farm’s arable land should be set at, it is not sufficient to only state less should be paid for the grassland without giving a figure or an explanation as to why they have reached that conclusion.

“In those circumstances I would only have one side’s evidence to rely on,” she points out.

“As the ‘referee’, I can use the knowledge and experience I have from doing my job to decide how much weight to apply to what the parties tell me, but I am absolutely not allowed to use that experience to guess at what the parties mean or to extrapolate what they are telling me into something else.”

Parties need to ensure that the evidence submitted matches what the rent review provision requires – this could include budgets if it is an AHA rent review, and comparable evidence for both AHA and FBT reviews.

Once “statements of case” have been presented, each party has a period of time to review their opponent’s case.

Each is able to counter any comments before the arbitrator considers the case.

Before reaching a conclusion, the arbitrator is likely to visit the farm at the centre of the dispute, and perhaps comparable farms.