It is common for leases to stipulate that, if a dispute arises, the matter should be referred to arbitration. However, the decision of the arbitrator can be overturned in some circumstances. If the arbitrator’s decision is seriously flawed – for example because it fails to take into account all the relevant information – it can be challenged.
This is just what happened in a recent case in which, following a rent review, the rent payable by the head tenant of a multiple-lease property was referred to an arbitrator for determination.
The landlord contended that the new rent should be the sum of the rents payable by the tenants, net of management costs. The head tenant argued (optimistically) that since there was no ready market for the lease, the rent should be a peppercorn. Unsurprisingly, the arbitrator decided that the landlord’s argument was to be preferred. When determining the rent payable, however, the arbitrator made no allowance for the profit element required by the head tenant. The decision was challenged and the court agreed with the challenge.
The court took the view that the arbitrator’s failure to allow for the head tenant’s profit, despite it not having been raised in the submissions, was a serious failure.
The matter was remitted back to the arbitrator to be determined anew.