Testing the rent review system: report

Chapter 9: Dispute Avoidance

9.1 Other Relevant Factors: Dispute Resolution

9.1.1 The Invitation to Tender outlines the project's requirement to assess methods of deriving a fair rent on the basis of productive capacity, surplus residential accommodation and non-agricultural use. The Team was also asked to consider other relevant factors.

9.1.2 The drive to reform the agricultural rent review process arose from the perceived number of farm rent reviews which were requiring resolution in the Land Court. One of the reasons for this was the adjustment of comparable rents; essentially the discounts applied to the comparable rent to allow for scarcity and marriage value. Parties did not properly understand each other's position and this lack of understanding often led to dispute.

9.1.3 Whilst considering a procedure for assessing the productive capacity of the farm, the Team also felt it appropriate to detail a system for farm rent reviews which would minimise the number of areas to be negotiated, make as many of the calculations in a transparent and scientific fashion so that it is explicit on how the rent proposed had been arrived at. The challenge with making the procedure too simple is that it then becomes too inflexible and parties become disadvantaged as a result.

9.1.4 We have identified the following three different pathways for settling a rent review:

1. Litigation and/or Arbitration.

2. Alternative methods of dispute resolution.

3. Dispute Avoidance.

The objective of the Act was to implement a fair rent procedure through productive capacity assessment. The challenge at the same time is to produce a system which reduces the opportunity for dispute. However, for the various reasons noted throughout the report there are often a variety of factors which can be debated when arriving at the productive capacity which presents a huge potential for conflict within this system. Of the above three pathways the preference should always be 'dispute avoidance' which we believe is possible if best practice guidance facilitates an intellectually honest and transparent process.

9.2 Achieving the Objective

9.2.1 In order to achieve this aim we would promote complete transparent communication through a prohibition of 'without prejudice' correspondence, the disclosure of all relevant information ( i.e. litigation insurance), the agreement of a Statement of Facts and the acceptance that all surplus income should be split 50/50 unless justified otherwise. These are the main concepts believed to underpin dispute avoidance.

9.2.2 The purpose of 'without prejudice' correspondence is to prevent the use of written material being introduced to the dispute resolution process later on in the rent review, should the matter proceed to court. It can enable parties to take a hard and perhaps extreme position and can serve to drag out a rent review. The adoption of an extreme position cannot be conducive to achieving a settlement. The Team believes that it would be in the interests of all parties that 'without prejudice' correspondence be prevented with best practice guidance being put in its place.

9.2.3 At the outset of the farm rent review we believe that disclosure of all relevant information and the agreement of a Statement of Facts is essential. This factual capture will also record tenant's improvements and fixtures. Its purpose would be to accurately identify the physical characteristics of the farm. In addition, lease terms that would influence the rent are identified. This document sets out the factual information relevant to determine productive capacity but also surplus residential accommodation and non-agricultural income. The purpose of establishing the factual matrix at the outset will help narrow the issues between the parties. If mediation, arbitration or indeed Land Court action is required then such additional third party involvement is focused to those points which are therefore not agreed. This will also serve to mitigate costs. A proposed template for a Statement of Facts is attached at Appendix 3.

9.2.4 The Statement of Facts of the tenancy will be a more significant component of the first rent review under the new system than in subsequent reviews. It will only need to be updated with details of new improvements or new landlord's fixed equipment carried out since the last review. The Statement of Facts would be informed by a tenant's application to the Tenants' Amnesty on Improvements. We recommend that the Statement of Facts is completed within the Tenants' Amnesty timeframe in order to minimise disputes within the rent review system going forwards.

9.2.5 Finally, it should be agreed between parties that a 50/50 split of the surplus rent is fair and equitable with any other means of determining a split being highly likely to cause dispute between the parties involved. The concept of a 50/50 split is derived from what a tenant is likely to consider when bidding for a farm. Pushing a higher split of the surplus towards the landlord is likely to risk the business being unviable and going below 50/50 would not be competitive and would not give the landlord a fair return on their capital.

9.2.6 The Act makes provision that where no agreement on rent is reached following a rent review notice being served that the landlord or the tenant of the holding may (whether the sender of the notice or not) refer the question of what the rent payable in respect of the holding to the Land Court. Such a referral must be made prior to the rent agreement date. It has often been commented on that the Land Court is an expensive and time consuming means of resolving a dispute. The CAAV previously canvassed for support for an amendment to allow parties the option of agreeing to have disputes referred to arbitration under the Arbitration (Scotland) Act 2010 (or expert determination) for a final and binding decision as an alternative to the Land Court. However this was thought to increase the risk of uncertainty as to which approach should apply and the likelihood for an increased number of appeals and cost.

9.2.7 The debate concluded that further guidance was required to ensure tenants were aware of the alternative approaches to dispute resolution which are open to them.

9.2.8 The role of Tenant Farming Commissioner is to promote and encourage good relations between Landlords and Tenants and publish codes of practice. As part of this role we believe work is required to guide Landlords and Tenants to alternative methods of dispute resolution such as mediation and expert determination to encourage a communication based means of resolving disputes in order to improve relationships and prevent future disputes by resolving underlying issues.

9.2.9 Such an approach would involve the following actions from the Tenant Farming Commissioner:

• The creation of a Code outlining the recommended conduct of landlords, tenants and their agents throughout the rent review process. This should include guidance on the use of 'without prejudice' correspondence, the disclosure of all relevant information, the agreement of a Statement of Facts (with reasonable ranges worked into this) and the agreement on the split of surplus being 50/50.;
• the creation of a Code outlining the best practice procedure for dispute avoidance and resolution.;
• the creation of a timeframe as to when each method should be trialled within a rent review process and at what point moving onto the Land Court is acceptable. This should be seen as the last resort.;
• the provision of rent review focused training for mediators, arbiters and experts.;
• the production of an approved list of mediators, arbiters and experts.;
• the creation of a helpline/guidance means of communication directly linked to the Scottish Government so that complaints can be lodged about landlords/tenants/agents/mediators/arbiters/experts and investigated accordingly.