Upper Tribunal finds unlimited rent increase clause could not be considered unfair due to statutory challenge mechanism

About this case:

• Citation:
  2025UT77
• Judgment:
  External link
• Court:
  Upper Tribunal for Scotland
• Judge:
  Sheriff Julius Komorowski

Robert Horne, who had been a tenant of a property owned by Slash Property Ltd since July 2016, objected in principle to the First-tier Tribunal’s reliance on a statutory method of rent challenge to mitigate the unfair effect of the rent increase clause. He further argued that there were practical challenges to relying on the right of reference, particularly with regard to the time it would take for a decision to be made.

The application was considered by Sheriff Julius Komorowski, with McPhee, advocate, appearing for the appellant and Reid, lay representative, for the respondent.

Longer than the notice

Under the terms of the parties’ lease, a short assured tenancy dated 29 July 2016, the landlord was able to increase the rent to an unlimited extent with one month’s notice. The tenant was unable to terminate the lease without giving at least two months’ notice and thus could not entirely avoid paying an increased rent for at least one month. An application was made to the FTS by the landlord for payment of rent at a rate increased in line with this clause.

The tenant maintained that an unlimited rent increase clause was unenforceable due to being an unfair term under section 62(1) of the Consumer Rights Act 2015. This argument was rejected by the FTS on the basis that there was a statutory right to independent review of the rent under section 34 of the Housing (Scotland) Act 1988, so in practice a tenant would not be exposed to unlimited increases.

While the tenant accepted that the statutory right to challenge the rent existed, he said that in any individual case there might be no determination. At the permission hearing, counsel for the appellant objected to the FTS’ reliance on the tenant’s right of reference, noting that the determination would likely take longer than the notice period for the increase in rent.

Could withhold payment

In his decision, Sheriff Komorowski said of the objection in principle to reliance on a right of reference: “It is in the nature of legal rights that one party or another may have to initiate litigation to determine and enforce their rights. In commercial leases a rent review clause setting an indeterminate standard with a mechanism for independent determination, such as setting the new rent at the market rate to be determined by an arbitrator if not agreed, is commonplace. I do not consider it matters in principle whether the method of determination of the limit to an increase in rent is contained in the contract itself or imposed by statute.”

He added: “The nature of a rent reference means that the litigation is initiated by the tenant, rather than the landlord by means of an action for payment, but I cannot see that this fundamentally matters. I do not see how this could be a categorical objection. It would depend on the effectiveness of the rent reference mechanism and any burdens to the exercise of that right.”

Considering the tenant’s practical objections, the sheriff said: “A tenant could withhold payment of the disputed element of any increase and ask for any proceedings to enforce payment of that element to be sisted whilst the rent reference was to be determined. If the determination was made as to a point in time after the new rent fell due, the tenant would surely be entitled to repetition of the difference between that and any rent paid. The decision-maker would, surely, fix the effective date to reflect the state of the market, so that, where satisfied that the sum a landlord might reasonably expect to obtain significantly exceeded the contractual rent as at the date of the application, the determined rent would take effect from that date of application.”

However, he noted in an obiter comment: “Had I granted permission to appeal, I would have required parties to address whether truly the lease provided for an unlimited power to increase rent. I would have thought it did not. As a generality, courts will imply constraints on an ex facie absolute discretion that one contracting party can exercise to the detriment of another. That has included a power to vary the interest rate on a loan. I cannot see how a term setting the time cost of land would be different from that setting the time cost of money.”

Sheriff Komorowski therefore refused permission to appeal.