Please Note: This Article is 7 years old. This increases the likelihood that some or all of it's content is now outdated.

Last year someone on LandlordZONE Forum’s commercial property board was asking about breach of warranty of authority, and suggesting the landlord’s surveyor might be pulling a fast one. The question was brought to my attention by another LZ member who happens to be a client. The questioner’s facts bore a striking resemblance to a rent review I was dealing with so I asked the client to reply – I wasn’t involved with LZ at the time.

A sector of property (real estate) law, business tenancy law is a complex fast-moving subject and it is said that surveyors that deal with rent review and tenancy expiry/renewal have a far greater understanding than most. In theory, the parties ought to be able to agree without delay but, in practice, negotiations invariably take a long time to conclude. It is not the agreement that can take weeks, monthly, sometimes years, but the process of reaching agreement. Perhaps to save money on fees and costs, landlord and/or tenant will have a go at negotiation direct; after all how hard can it be to reach agreement when decision-makers communicate between themselves?

In theory, it should only take a few minutes to reach agreement, provided the first proposal is accepted. If you’re the landlord and pitch the proposal at a figure you would think the tenant could afford, even if the tenant could afford it why should the tenant agree when having regard to the terms and conditions of the tenancy it might be possible to achieve a lower rent? Conversely, if you’re the tenant and think your proposal fair and reasonable why should the landlord agree with your interpretation of fair let alone reasonable?

Rent review negotiation isn’t as straightforward as it might seem. The skill and art of negotiation comes into its own through knowing what to do when something goes wrong. Add rental valuation to business tenancy law and you have a recipe for coming unstuck and/or not knowing what to do for the best.

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During negotiations, many aspects are agreed between surveyors without recourse to respective clients for instructions at every step of the way. To an extent that is sensible, most parties are more interested in the end-result than the process and really there is no point in instructing an experienced surveyor if you want a detailed explanation before the surveyor is allowed to say anything to the other side. Of course, it all depends upon the client’s experience of the process and confidence in the surveyor, neither practicality and/or emotion is always obvious no matter how assuring at the onset. Some time ago, I had the misfortune to represent a tenant whose attitude I likened to demonstrating a new car only for them ask you to tell them the name of the person that harvested the latex from the tree that was used to make the rubber for the tyres.

Unless the lease requires a proposal to be specified in a notice, it’s not necessary for the landlord or the tenant to indicate a rent as a basis for the negotiations. Even so, it is common for a proposal at the onset and for ensuing discussions for the reaching of agreement to be ‘without prejudice’.

The expression ‘without prejudice’ means “without prejudice to my right to contend for the full amount to which I assert I am entitled”. In the context of a dispute where terms of settlement are offered, the effect of that will be that, if no agreement is reached and the matter goes to arbitration (or to court), the discussions and any concessions made in the course of them cannot be referred to or relied upon.

The policy of the law is to encourage the compromise of disputes. in general, a statement (whether written or oral) made in an effort to compromise a dispute is taken to have been made on a “without prejudice” basis and is not admissible in evidence unless both the maker and the person to whom it was made consent.

Since ‘without prejudice’ communications are not normally disclosable, one might think that anything can be said without fear of reprisal, but use of ‘without prejudice’ should not be taken for granted. The parties must make it clear at the onset and for the duration of the discussions (if only to be on the safe side) that the negotiations or communications are ‘without prejudice’. Failure to do so, especially where oral communications are involved, could result in a binding agreement which end up causing all manner of difficulties. For example, it has been held that on request by a tenant of the landlord’s consent for licence to assign the terminology used in preliminaries could give rise to consent being granted, and with rent review notices, ‘without prejudice’ positioned in the wrong place can render the notice invalid.

An offer to compromise a dispute is usually inferred as made without prejudice, unless the circumstances negate such an inference. Therefore, whether or not a party actually used the words “without prejudice” on the document is not determinative. Furthermore, terms such as “off the record” and “confidential” have no legal significance.

A ’breach of warranty of authority’ is a rare example of inexperienced use of the terminology ‘without prejudice’ during rent review negotiation. In principle, an offer made ‘without prejudice’ is capable of acceptance, provided the acceptance is otherwise in an open letter or where any condition would be no consequence – the expression ‘subject to contract’ is not always an escape route. When the party upon whose behalf the binding offer is made back-tracks, the agent for that party becomes personally liable and can be sued for damages; hence the breach of warranty of authority. Of course, an agent cannot force the client to agree – agreement is the client’s prerogative – but to make an offer in a form that is capable of acceptance presupposes the client is agreeable to the possibility the offer would be acceptable.

Michael Lever
The Rent Review Specialist
Established 1975

Please Note: This Article is 7 years old. This increases the likelihood that some or all of it's content is now outdated.
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