Arbitration in landlord and tenant disputes
30th November 2015
Most landlord and tenant disputes end up in court. From the perspective of landlords, this can be a lengthy, frustrating, and costly process. For tenants, the experience is often uncertain, draining, and also costly. Is there a place for arbitration in this?
Arbitration is the consensual, private, and binding resolution of disputes outside the court system. It differs from litigation, since the parties are neither unwilling participants nor at the mercy of the court process. It differs from mediation, which is also a consensual and confidential process that facilitates (but may or may not result in) the resolution of a dispute.
Arbitration is widely used in disputes involving international corporations and states. There are many advantages to arbitration, for example flexibility, the parties’ ownership of the process (referred to widely as “party autonomy”), ease of enforcement of arbitral awards, the opportunity for confidentiality as well as privacy, and often (but not always) greater speed and lower cost. This is particularly true, given the limited avenues for appealing or setting aside arbitral awards.
Most disputes can be arbitrated. Some practitioners and academics would say that all disputes are in fact arbitrable, including, for instance, environmental disputes, trusts claims, and international human rights issues. Yet, apart from disputes arising out of tenancies of agricultural land, adjudication in tenancy deposit cases (which is not arbitration per se), and rent reviews in commercial property, one does not often encounter domestic arbitration of landlord and tenant disputes. Why is this?
Restrictions on consumer arbitrations
The Consumer Rights Act 2015 (previously the Unfair Terms in Consumer Contracts Regulations 1999) most probably applies to residential leases.
Terms which are unfair, not individually negotiated, and which significantly disadvantage the consumer are rendered automatically void. This would, on the face of it, apply to an arbitration clause within a standard form tenancy agreement. It is of course possible for parties to agree to submit a dispute to arbitration after a dispute has arisen, but a standard arbitration clause in a tenancy agreement might well fall foul of the 2015 Act.
In addition, arbitration agreements in respect of claims valued at below £5,000 are automatically deemed unfair under the 1999 Regulations and 2015 Act. However, this would not on the face of it disqualify a large number of claims for rent arrears, or counterclaims for significant disrepair.
Failure to comply with the lease
If a lease contains an arbitration agreement expressed in mandatory terms, then subject to the point on restrictions above, there should be no question: the parties are required arbitrate. If a party litigates in breach of such an arbitration clause, that is a breach of contract (or breach of covenant). Court proceedings would be stayed…that is, if the defendant/respondent sought to uphold the arbitration agreement.
It may be that, due to unfamiliarity, no-one notices the arbitration agreement, or a defendant is happy to ignore and waive the breach.
Litigation is the habit
Most legal professionals and the judiciary in the County Court might raise an eyebrow or two if a landlord and tenant sought to arbitrate a residential possession claim. But there is no express prohibition in the Housing Act 1988 and nothing to conclusively suggest that the court has exclusive jurisdiction to determine such disputes, or that the court’s jurisdiction cannot be ousted. Incidentally, the position in England and Wales is in contrast to the German Arbitration Law (section 1030), which prohibits arbitration in relation to certain residential lease disputes.
It may well be that a landlord is better advised to arbitrate certain disputes, given the powers that the parties have in controlling the arbitration process. Whilst this may be an advantage, the fact that an arbitrator would not be bound by the Civil Procedure Rules (unless the parties both agree) means that the process might not afford certainty.
As an aside, some practitioners may recall “small claims arbitration” in the days before the Civil Procedure Rules. However, that was never really arbitration at all, but a method of allocating the lowest-value cases to be dealt with by district judges in the days before the small claims track.
There is scope for the arbitration of landlord and tenant claims. The infrastructure is in place. Both the Royal Institute of Chartered Surveyors (RICS) and the Chartered Institute of Arbitrators (CIArb) are pre-eminent. They have considerable expertise, established rules, and dispute resolution systems (the RICS has its Dispute Resolution Service, and the CIArb has its Dispute Appointment Service). Both organisations frequently appoint arbitrators in other civil disputes.
The appetite for this type of arbitration does not currently exist. Yet, with increasing court fees, further cuts and closures of courts in the pipeline, and the uncertainties over online courts on the horizon, there is a case to be made for the arbitration of landlord and tenant disputes.