Commercial rent disputes set for decade-long low in Scotland

The number of disputes between commercial property occupiers and landlords in Scotland being referred to third-party resolution is on track to be the lowest in a decade, new research today suggests.

There were 22 applications for third-party arbitration between the start of 2022 and the end of May, according to analysis from commercial property consultancy Knight Frank. This points to there being fewer than 55 by the end of the year, the firm added.

By comparison, there were 64 applications for third-party determination in 2021 and 2020 saw 69.

The figures mark a substantial drop from the number of cases pre-pandemic. In 2019 there were 92 cases, with 123 in 2018 and 169 in 2017. More than 290 cases went to independent assessment in 2016, which was the peak of the last decade, while there were 155 in 2015, 125 in 2014 and 2013 saw 147 cases.

Knight Frank based its report on figures obtained from the Royal Institution of Chartered Surveyors (Rics).

Andrew Hill, lease advisory partner at Knight Frank Scotland, said: “There has been a significant drop in the number of rent disputes having to be referred to third-party determination during the pandemic, which has continued into 2022 as both landlords and tenants have been cautious about submitting review applications.

“A mixture of factors have been at play, but the two most prominent are that many people are still to fully return to workplaces and demand in the property market – particularly in Edinburgh and Glasgow – has remained resilient while supply continues to be constrained. The flight to quality space has been one of the main trends of the pandemic, and there are few options available to occupiers considering a move.

“There will also be an element of landlords and occupiers working together during a very challenging time to strike agreements that met both their needs. For example, we saw more landlords agreeing rent-free periods or deferring rent payments in exchange for lease extensions during 2020 and 2021.”

Of the 155 disputed cases since January 2020, 46 (30 per cent) were in Edinburgh, above, and 39 (25 per cent) occurred in Glasgow.

Of the 155 disputed cases since January 2020, 46 (30 per cent) were in Edinburgh and 39 (25 per cent) occurred in Glasgow. Aberdeen has seen just nine commercial rent disputes referred to third-party determination since the pandemic began.

Offices represented about a quarter of the cases requiring arbitration, while prime and secondary retail accounted for another quarter.

Independent experts or arbitrators are appointed to cases where commercial tenants and landlords cannot agree on a new rental deal at a fixed-term review date. Typically, these are conducted every five years, depending on the terms of an occupier’s lease.

Hill added: “With interest rates rising and inflation at multi-decade highs, whether we begin to see disputes rise again will likely be heavily influenced by the health of the economy. However, like it was during the heights of the pandemic, it will be very important for landlords and occupiers to communicate and collaborate as much as possible.”

Headquartered in London, Knight Frank has more than 20,000 people operating from 488 offices across 57 territories.