Disputes between landlords and occupiers in Scotland reach 10 year low

Andrew Hill (Knight Frank Scotland)

LAST YEAR, Scotland saw the lowest number of rent disputes between landlords and occupiers referred to third-party resolution in a decade, according to analysis from Knight Frank.

The independent commercial property consultancy obtained figures from the Royal Institution of Chartered Surveyors (RICS) which show there were a total of 50 applications for third-party arbitration last year.

Eleven cases involved large offices, while nine were for industrial properties. The remaining 30 cases were spread across primary and secondary retail, warehouses, hospitality, and other sectors.

The number of disputes referred for third-party determination in Scotland has fallen steadily since reaching a peak of 291 in 2016 – a decline of -83%.

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. 

Rent disputes in Scotland referred Third-party determination 2013-2022:

Andrew Hill, lease advisory partner at Knight Frank Scotland, said: “The decline in the number of rent disputes going to a third-party decision continues, with landlords and occupiers remaining cautious about submitting review applications in a market that was still feeling the effects of Covid-19 last year. 

“Part of this will be greater collaboration and communication between both parties. During the pandemic we saw more landlords providing rent-free periods and deferring rents in exchange for lease extensions, with landlords and occupiers negotiating for mutual benefit – a spirit which continued on into 2022. 

“In Edinburgh, particularly, rents continue to rise and in the last 12 months we saw a record number of regears, with many landlords wrapping up rent reviews at the same time. Those considering a move have few options to choose from, and so are deciding to stay put for now.

“Over the longer term, the structural changes in retail are likely to be a major contributor to the decline in rent disputes. The sector used to account for a signification portion of the cases being referred to a third party, but are now a very small share, with much of the hard discussion happening in the mid-2010s as e-commerce began to affect bricks-and-mortar stores.

“Whilst the threat of a recession persists, there remains cause for optimism within the Scottish commercial property sector with each of the principal markets of offices, industrials, and retail showing signs of improvement. How this manifests in the number of third party applications for 2023 remains to be seen.”

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