19 August 2011 | By Anthony Lorenz
This has led me to the conclusion that we need to stamp out abuse of the arbitration system by expert witnesses, and improve arbitration standards overall. The RICS and Arbrix are the bodies responsible for the efficiency of the arbitration system.
The much talked-about abuse of the arbitration process by expert witnesses, in which both landlord and tenant representatives submit unrealistic rent forecasts, drags out negotiations longer than they should be.
The landlord’s experts go in high and the tenant’s low – despite “Calderbank” offers to settle that may have been made by the parties to protect costs. Take a rent arbitration where the landlord’s surveyor argues for £110,000 and a tenant’s surveyor for £90,000.
If the determination is £92,000, the landlord has clearly lost. In this case, I suggest the landlord should pay 18/20ths – equivalent to the lost proportion of the difference – of the total costs.
If the landlord’s expert had proposed an even higher rent – say, £120,000 a year – the client should pay 28/30ths. This would encourage the experts acting for both parties to put in realistic proposals and lead to quicker decisions.
I also think there should be changes to the costs of applications to appoint an expert or arbitrator. At the moment, the cost is £369 – a lot of money for a £3,000-a-year shop and upper part in Pudsey, but very little for a 100,000 sq ft office building in High Holborn.
People enter the process to try to gain the upper hand in negotiations. If the fees were higher, this abuse may diminish. I believe the costs should be levied on a percentage of the rent – say, 1.5% of the annual rent agreed – and the minimum fee of £369 continued.
Our research shows that applications by us or other surveyors – and we have not become any more difficult over the years – have increased fourfold over the last five years.
The increased funding would also improve the efficiency of the arbitration service and arbitrators could be selected less randomly than they are at present. A forum of arbitrators could advise on the right arbitrator for each individual job.
Those appointees could also benefit by from a contribution to their fees from the RICS to cover them for abortive costs when they start writing letters and the parties settle. One of the biggest problems that  faces arbitrators, which makes the arbitration job unrewarding, is the fact that their own firm can be conflicted from handling landlords’ or tenants’ rent reviews on adjacent or similar buildings. I believe that arbitrators should charge an abortive monthly fee that covers them for any reasonable conflict.
Need for speed
The delays in arbitration are another problem that needs to be addressed. In many of our cases, arbitrator’s awards have taken two to three months, if not more. There should be a directive that the arbitrator’s award be published, barring sickness and holidays, within a month to six weeks of final representations.
Some leases include a clause that requires determination within a month. If leases can so direct, then so can the system be changed to move things forward. If the parties knew that by holding an arbitration file open month after month without settling the negotiation, while fees were accruing, this would encourage settlement.
Parties must try to settle negotiations without abuse of the arbitration process. We hope that Arbrix and the RICS will take some of these initiatives so that the system will improve.
Anthony Lorenz is senior partner at the Lorenz Consultancy
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