Landlord leasing premises and instructing solicitors – Solicitors drafting lease and negligently failing to draft an upwards-only rent review clause – Tenants not liable to increased rent due to rise in Retail Price Index – Basis on which damages were to be assessed – Damages assessed partly on basis of actual loss and partly on diminution in value of freehold reversion
In 1986 the plaintiff company took a 35-year lease of Jackswood Garden Centre, Maidstone Road, Paddock Wood, and a 35-year lease of an adjoining farm shop and commenced trading as a garden centre at the premises. In 1987 the plaintiff acquired the freehold reversion of the garden centre and farm shop. However, it suffered trading difficulties, and instructed the defendant firm of solicitors in relation to a proposed lease of the premises. The lease was completed in October 1989 and was for a term of 35 years at a premium of £100,000. The rent for the first year was £100,000, which was to increase in the second and third years in accordance with the Retail Price Index. The lease contained a break clause permitting the tenants to determine the lease at the end of the first, second or third year. It also contained a rent review clause relating to the rent payable after the first three years which was to be agreed or ascertained as the ‘then current market rental for the letting of the demised premises’.
After the first year, relying on the indexation clause under which it was calculated that there was no increase in rent, the tenants declined to pay more than the initial rent of £100,000. The plaintiff issued proceedings and claimed that the defendant firm had negligently drafted the lease. The defendant admitted that it had been negligent in drafting an upwards-only rent review clause, but contended in relation to damages that the total damages should be assessed on the basis of the diminution of the plaintiff’s freehold reversion at the date of the transaction.
Held The plaintiff was awarded damages of £132,355,92, less a £50,000 payment already made, plus interest to be agreed.
1. The damages for the second and third years were to be assessed on the basis of actual loss because that took into account the known increase of the Retail Price Index between August 1989 and August 1990 and August 1991, and it therefore provided a fair and accurate measure of the plaintiff’s true loss.
2. The damages in respect of the remaining 32 years were to be calculated by reference to the diminution to the value of the freehold reversion as a result of the defendant’s negligence. The diminuted value of the freehold reversion was to be the value in October 1992, which was the time when the causal connection between the defendant’s negligence and the plaintiff’s loss ceased.
3. There was a 75% chance that the tenants would have accepted a lease with an upwards-only rent review clause, and there was a 66% chance the tenants would have exercised the break clause. Therefore there was a 50% chance that the plaintiff would have obtained vacant possession. The freehold with vacant possession would have been worth £40,000 more, and therefore the plaintiff was entitled to an additional £20,000 by way of damages.
Paul Morgan QC and Edward Cole (instructed by Meredith Smith & Pratt, of Tonbridge) appeared for the plaintiff; Simon Berry QC and Thomas Leech (instructed by Thomson Snell & Passmore, of Tonbridge) appeared for the defendant.
