Negligence — Rent review provisions — Tenant’s action against surveyors — Review clauses in tenant’s underlease — Plaintiff tenant’s complaint in essence that defendant surveyors, instructed by him to act in connection with review, had negligently failed to apply and operate the rent review machinery in accordance with the underlease — As a result of this failure, it was alleged, the tenant was not protected against the risk (which materialised) of the determination of an unexpectedly high rent by the independent expert
held an underlease of a small shop for a term of 25 years from March 25 1976,
with rent reviews at five-year intervals — His landlords, the underlessors,
were tenants of the whole building, their head lease being subject to rent review
provisions with the same dates as in the underlease — The present litigation
concerned the rent review of the underlease due with effect from March 25 1986,
the rent before the review being £3,000 per annum — It was provided that the
reviewed rent, if not fixed by agreement, was to be determined (as in fact
happened) by a surveyor, acting as an expert, appointed by the president of the
RICS — The surveyor so appointed was to specify a period, not exceeding four
weeks, for submission of representations by the parties and he was required to
notify his decision to them ‘within two months of his appointment or within
such extended period as the lessor may agree’ (not, it may be noted, as the
parties may agree)
leading up to the present litigation were a curious story of misunderstandings
and delays, with a question as to the apportionment of the expert surveyor’s
fees and even a suggestion (not pursued) that he was the subject of a conflict
of interest — At the start of negotiations the tenant’s figure for rent was in
the region of £4,600 per annum and the landlords’ in the region of £7,000 —
Other figures were mentioned but not agreed — As progress was not being
achieved, the appointment of a surveyor was made by the president, the same
person being appointed for the underlease and the head lease — The surveyor
fixed a time-limit for representations by the parties, the date being later
extended — In fact no representations at all were submitted and the surveyor,
after the expiry of the time-limit, determined a rent of £9,250 per annum, a
figure very much higher than anyone, even expert witnesses, had expected
alleged that the defendants had been negligent in different ways — The main
complaint was the failure to submit any representations to the independent
surveyor, whether as to a rental of £4,600 or otherwise, thereby forfeiting the
opportunity of influencing his determination — Subsidiary allegations of
negligence were failure of defendants to advise the plaintiff as to the true market
rent and failure to advise the plaintiff to accept an offer, made at one stage
on behalf of the landlords, of a rent of a little under £7,000 per annum — The
judge rejected these subsidiary allegations but held that the defendants were
negligent on the
plaintiff’s behalf were submitted to the surveyor before the expiration of the
time-limit fixed in accordance with the review provisions
then considered the question of damages — It was common ground that the rent of
£9,250 was much higher than could be justified — It had to be compared with the
proper open market rent at the review date, which the judge found to be £7,000
— The difference between the value of the lease with a rent of £9,250 and the
value with a rent of £7,000 was agreed to be £8,100 — The judge held that this
was the amount of the damages, rejecting as involving duplication a suggestion
that there should be added to the £8,100 an amount for the reduction in the value
of the plaintiff’s business — Judgment for the plaintiff accordingly
No cases are
referred to in this report.
In this action
the plaintiff, Hiten Rajdev, sued the defendants, Becketts, a firm of surveyors
with an office at Station Road, Harrow, alleging negligence by the defendants
when acting on his behalf in relation to the rent review of lock-up shop
premises at 385 Station Road, Harrow, of which the plaintiff held the
underlease.
Patrick
Sinclair (instructed by Hart Fortgang) appeared on behalf of the plaintiff;
Philip Shepherd (instructed by Lloyd Cooper) represented the defendants.
Giving
judgment, MR R A K WRIGHT QC said: This is a case of professional negligence
against a firm of surveyors arising out of their conduct while acting for the
plaintiff over a rent review clause under an underlease dated February 1 1977
of lock-up shop premises at 385 Station Road, Harrow. The shop was a very small
shop. The underlease was for a term of 25 years from March 25 1976. The
original rent was £1,250 per annum. There was a rent review clause every five
years.
A review was
due with effect from March 25 1986. At that date Mr Rajdev was the tenant by
assignment from the original tenant and the rent was £3,000 per annum. The
landlords were a firm called Stimsons, who occupied premises next to the shop.
Stimsons were also the landlords of premises upstairs, occupied by a firm of
solicitors. Stimsons were themselves tenants under a headlease with a rent also
subject to review on March 25 1986. The moving spirit of Stimsons, at Harrow at
any rate, was a Mr Forbes Harris.
The rent
review provisions in the third schedule to the underlease were in many respects
in common form, but there are some features to which I must refer. First, the
revised rent if not agreed was to be fixed by a surveyor to be appointed by
agreement or, in default of agreement, by the president of the Royal
Institution of Chartered Surveyors, as was the procedure followed in this case
in fact. Second, the surveyor was to give notice of his appointment to the
lessor and lessee and specify a period, not exceeding four weeks, for
submission of a valuation accompanied, if desired, by a statement of reasons.
Third, the surveyor was to act as an expert and was to fix the open market rent
according to his own judgment and was not to be limited or fettered by any
valuations submitted to him. Fourth, the surveyor was required to give notice
in writing of his decision to the lessor and lessee ‘within two months of his
appointment or within such extended period as the lessor may agree’.
On January 14
1986 Stimsons wrote to Mr Rajdev saying that Stimsons intended to seek a review
of the rent under the underlease. The letter explained that Stimsons were the
tenants of the whole building and were awaiting review proposals from the head
landlord. Stimsons’ and Mr Rajdev’s shops were on the ground floor and, as I
say, a firm of solicitors were on the first floor. Stimsons explained that they
were not putting a rental suggestion to Mr Rajdev pending negotiations with the
superior landlord.
On February 14
1986 Mr Forbes Harris on behalf of Stimsons wrote to Mr Rajdev again,
explaining that the head landlord had recently indicated the rent he required
for the whole property and negotiations had just begun, but he wrote that if he
passed on the same sort of increase as the head landlord was asking for, the
rent of the shop would be about £8,000 per annum. In a later, undated letter
said to be subject to contract without prejudice, Mr Forbes Harris told Mr
Rajdev that he must quote a rent of £7,500 per annum on the review.
Mr Rajdev was
a young man of little or no business experience. He had been installed in the
shop by the family. He knew little more by way of business administration than
to record outgoings and takings and the accountant did the rest of the
accountancy work. His father, Mr Rajdev senior, had a business in Portugal, but
his wife lived in England and helped in the shop. Mr Rajdev senior came to
England regularly. He did so on this occasion and took charge of the situation.
The Rajdevs,
on a family recommendation, consulted Mr Peter Beckett [FRICS], a partner in
Becketts of Station Road, Harrow. The Rajdevs called on Mr Beckett and at that
meeting Mr Rajdev senior did most of the talking. Mr Rajdev junior was inexperienced
in business and was content to leave this kind of matter to his father. The
meeting was by way of a preliminary discussion. Mr Beckett did not at that time
have a copy of the underlease. Mr Rajdev senior showed Mr Beckett the letter he
had received from Mr Forbes Harris mentioning a possible rent of £7,000 or
£8,000. Mr Beckett said the rent should not be anything like £8,000 and thought
it should be in the region of £4,500 to £5,000.
This view was
expressed in general terms as the lease was not available. Mr Rajdev senior
accepted this estimate of rent as reliable because Mr Beckett had an office
just round the corner and knew the area well. Mr Beckett knew that the area of
the shop was about 300 sq ft and that rents locally were in the region of £20
to £25 per sq ft. Mr Beckett’s charges were discussed.
Mr Beckett
explained that if the new rent could not be agreed it would be fixed by an
independent expert. He warned, again in general terms, that an expert might fix
a rent which was lower than expected but there was a risk that he might go much
higher than expected. Mr Beckett could not be more precise until he had seen
the underlease and did not know whether the independent valuer would be acting
as an arbitrator or an expert. Nobody present remembers whether the expenses of
the independent valuer were discussed, but the fixing of the rent was
discussed.
Mr Beckett
received a copy of the underlease a few days later. He read the rent review
clause and scanned the rest. He accepts that he did not appreciate the
importance of the provision mentioned above, that the expert had to determine a
rent within two months unless the lessor agreed to a longer period. The
negotiations then proceeded largely by correspondence and telephone messages.
In an undated letter Mr Forbes Harris of Stimsons wrote that following a
meeting with the head landlord, Stimsons would be requiring a new rent of
£7,500, as I have mentioned. In his reply dated July 3 1986 Mr Beckett wrote
that he found this surprising. Since £25 a sq ft had not been achieved locally,
he thought £15 a sq ft would be about right, which would produce £4,500.
In subsequent
correspondence, Mr Beckett on the face of it appeared to be somewhat dilatory
in answering requests from Mr Forbes Harris to make progress in the
negotiations. Mr Beckett explained to me that this was his negotiating approach
at this stage.
On July 28
1986 Mr Forbes Harris wrote to say that the head landlord had instructed his
agent to apply to the Royal Institution of Chartered Surveyors to appoint a
surveyor to fix the new rent under the head lease, the review dates being the
same. He went on to say that, unless the rent could be agreed for Mr Rajdev’s
shop within a few days, Stimsons would also apply to the institution for the
appointment, since it was sensible that the same person should act in both
cases. There was little room for manoeuvre, he said.
Mr Beckett’s
reply, dated July 30 1986, was that he would be quite comfortable with £20 a sq
ft, which would produce £6,000. At that stage Mr Ghai took over from Mr
Beckett, who was going on holiday. Mr Ghai was employed by Becketts. Mr Beckett
arranged a second meeting with the Rajdevs at the end of July 1986 primarily to
introduce Mr Ghai as the person who would be holding the fort while Mr Beckett
was away. Mr Beckett did explain, according to Mr Rajdev senior, that Mr Forbes
Harris wanted a reply in a few days. Mr Beckett said that the rent might be
£6,000. Mr Rajdev told me that he would have to accept this rent if it were
fixed, but he believed that if the rent, then £3,000 a year, went up higher
than £4,500 the shop would have to be sold. Expenses were going up; the price
of products — confectionery, papers and the like — could not be raised. The
business was saddled with large debts.
Mr Beckett
told me that he realised that Mr Rajdev senior was disappointed at the
suggestion that the rent might be £6,000 but did not realise that a sale would
then be inevitable. Although Mr Beckett thought that he might have to settle in
the region of £6,000 to £6,500, he appreciated that he had to get the rent as
low as possible. Mr Beckett then went on holiday. He saw no reason why he
should not do
negotiations after he got back. He knew that Mr Ghai would also be going on
holiday, but he had not appreciated that he would do so as early as August 5,
but nothing, in my view, turns on this. Mr Beckett expected that Mr Ghai would
measure the property and put the work in hand in gathering comparables and the
like work.
The position
then was that Stimsons would settle for £7,000 or a little less and Mr Beckett
would advise settlement for £6,000 or a little more, but Mr Beckett thought
that this gap was too wide to be bridged without further attempts at
negotiation to get it as low as possible. Indeed, he thought it might prove
impossible to reach a solution by negotiation.
On July 31
1986 Mr Forbes Harris wrote to Mr Ghai to say that he had translated Mr
Beckett’s offer as being something in the region of £4,600, although, as I have
explained above, as a matter of arithmetic Mr Beckett had reckoned it would be
upward of £6,000. There is no clear explanation of how this figure was reached,
since 300 sq ft at £20 per sq ft amounted to £6,000. Mr Forbes Harris stated
that while he would be prepared to come down a little from £7,000, the gap between
that figure and £4,600 was too great. He explained that the head landlord had
applied to the institution for the appointment of a surveyor, although an
appointment had not been made; he asked for Mr Ghai’s co-operation to ensure
that the same expert was appointed to deal with the subject.
Mr Ghai
replied on August 5 that he agreed that Mr Beckett’s offer could be translated
to be about £4,600. Mr Ghai did not give evidence about how he reached this
figure and it was assumed by all witnesses that it was a bargaining ploy. Mr
Ghai agreed that the same surveyor should fix the rent upon the head lease and
the sublease, but he hoped they would be able to reach agreement before then.
He explained that he would be away on holiday until August 19 and there would be
nobody at Becketts to deal with the matter until he returned.
On August 6 Mr
Forbes Harris replied that he was up against time-limits and could not await Mr
Ghai’s return. He had made an application to the institution for the
appointment of a surveyor and suggested it should be the same person as was
appointed for the head lease. On August 11 the institution notified Becketts of
the application in common form. They asked Becketts to inform the RICS if any
person was unsuitable by reason of any connection to the parties or premises.
On August 22 1986 the institution informed Becketts that they had appointed a
Mr J Ferrari [FRICS].
On August 26
1986 Mr Ferrari wrote to Mr Forbes Harris and to Mr Beckett inviting
representations by September 16 and reminding the parties that time was of the
essence. He would inspect the property after submissions. He gave particulars
of his fee. On August 27 Mr Beckett wrote to Mr Rajdev to explain what had
happened and that Mr Ghai was to prepare representations to Mr Ferrari.
On September 3
Mr Ferrari wrote to Mr Forbes Harris in answer to a letter from him, which is
not before me, sending copies to Mr Beckett and Mr Brookes, the agent for the
head landlord, saying that it was sensible he should deal with all
representations at the same time on receipt of confirmation of his fees by all
parties, and would call for representations to be submitted on the same day for
both the headlease and the underlease and would proceed in parallel.
Mr Beckett
took that to mean that the original call for representations by September 16
had ceased to apply. On September 5 1986 Mr Forbes Harris wrote to Mr Ferrari
with copies to Mr Beckett and Mr Brookes. He agreed the basis of the fees but
raised questions about apportionment between the headlease and the underlease.
Then on September 12, Mr Forbes Harris wrote to Mr Ferrari, with copies to Mr
Brookes and Mr Beckett, to say that comment had been made by the solicitors who
had their office upstairs that Mr Ferrari might well have an interest as overall
landlord of similar premises in the near vicinity. Mr Forbes Harris said he was
not aware of any such interest and if it existed Mr Ferrari must have satisfied
himself that it would not influence his findings, but Mr Forbes Harris thought
he ought to draw Mr Ferrari’s attention to the possibility.
On September
25 1986 Mr Ferrari wrote to Mr Forbes Harris. He said he had received
submissions from only one party and there might have been some confusion and he
would extend the time for submission to October 3 and the date for
counter-submissions to October 10. Mr Ferrari did not in this letter of
September 25 answer the query of September 12 about some possible conflict of
interest. Mr Forbes Harris wrote on September 26 by Fax to Mr Ferrari
suggesting that the letter may not have been received and sending a copy as
time-limits were running out. He also noted that he had had no answer to the
letter of September 5 about the apportionment of the fees. Mr Forbes Harris
sent copies to Mr Brookes and Mr Beckett.
Mr Beckett
told me that he had left Mr Forbes Harris to make the running over the possible
disqualifying interest as he, Mr Beckett, knew nothing about it personally. Mr
Beckett did think, while this was all going on, that it was desirable to make
Mr Forbes Harris an offer of £6,000 by telephone on September 10 1986. The
answer was that the head landlord had said that it was now too late to
negotiate and so it was now too late to negotiate with Mr Rajdev. Mr Forbes
Harris accordingly would not settle or negotiate but would await the finding of
the surveyor. Contrary to Mr Beckett’s belief that negotiations could be
continued after the appointment of a surveyor as to the future of the case, he
found, as he put it, that Mr Forbes Harris was ‘on automatic pilot’.
With
hindsight, it has become clear from Mr Forbes Harris’ evidence that he would
have settled at about £6,000, but Mr Beckett was not to know this. This was the
context in which Mr Forbes Harris and Mr Beckett received a letter dated
October 7 1986 from Mr Ferrari saying that he would inspect the premises on
October 14. As he had previously said that he would inspect the premises after
representations had been made, this letter gave cause for alarm that Mr Ferrari
might be proceeding to determine the rent without waiting for representations.
Mr Ghai wrote
on October 8 referring to the correspondence I have mentioned with Mr Forbes
Harris on the apportionment of fees and the possible disqualifying interest and
suggested that Mr Ferrari might stand aside. Mr Forbes Harris wrote on October
8 confirming the appointment of the inspection but complained that he had had
no reply to, or acknowledgment of, his letter. Mr Ferrari on October 10 wrote
to Mr Ghai rejecting the suggestion that he should stand aside and saying he
would proceed. On the same day he wrote to Mr Forbes Harris saying that he had
noted the comments on the apportionment of fees and sending a copy of the
letter dated September 25 1986, and fixing October 3 as the date by which
submissions had to be received.
In the absence
of Mr Forbes Harris on holiday, another partner of Stimsons sought without
avail the help of the institution to question Mr Ferrari’s appointment.
Stimsons wrote to Mr Ferrari on October 17 asking him expressly to confirm that
he had no interest in neighbouring properties, saying Mr Forbes Harris’ letters
had not been answered and that Mr Forbes Harris had been dealing with the
matter and was the only person who could prepare submissions. Accordingly,
Stimsons asked that Mr Ferrari should agree a fresh date for submissions. On
October 20 Mr Ferrari fixed the rent for the shop at £9,250 per annum, which
was very much higher than anybody — expert witnesses and others who appeared in
court — expected.
Upon this
factual position the plaintiff claims that Becketts have been negligent in a
number of respects, first put in two ways: (1) Mr Beckett was negligent in
failing to submit representations to Mr Ferrari substantiating a rent of £4,600
or any other rental within the time prescribed under the rent review clause or
to submit any representations at all. In fact, as I have said, no
representations at all were put in; (2) Becketts should have clarified the
position with Mr Ferrari as to whether representations had to be in by September
16, the day first mentioned, or by October 3, the date secondly stipulated, or
whether they could be submitted at some later date. In other words, Becketts
should have been aware of the two months’ period within which Mr Ferrari had to
make an award and should not have allowed themselves to get into a situation in
which no representations at all were put in. This, in my judgment, is the
substantial ground for complaint.
The second
ground of complaint is that Becketts failed to consider and advise the plaintiff
what the true market rent for the premises was at March 25 1986. I believe that
this complaint is without substance. Becketts were engaged in negotiating the
lowest rent possible. They did at first suggest it might be in the region of
£4,500 to £5,000; at the second meeting Mr Beckett got authority to offer
£6,000 but was not required to advise them formally. I find that he kept the
plaintiffs informed of the course of negotiations which were directed to obtain
the lowest rent possible.
The third ground
of complaint is that Becketts failed to advise the plaintiff of Stimsons’ offer
to agree the new rent at a little under £7,000 and failed to advise the
plaintiff to accept this offer. This is a matter of negotiating judgment and I
do not find that Mr Beckett was at fault in this respect. He offered £6,000; he
thought he might have to go higher. He thought that a little under £7,000 was
too high. The
authorised to negotiate and was doing so. As the case was put at the hearing,
Mr Beckett should have advised Mr Rajdev to accept the offer and so avoid the
risk that the surveyor might fix the rent much higher. It is true that just
under £7,000 is less than £9,250, but in the context of the negotiations I do
not think that Becketts should have advised Mr Rajdev to accept this figure. I
do not find that he was negligent for failing to do so.
Mr S W Taylor
[FRICS], an expert witness for the plaintiff, suggested that Mr Beckett should
have been aware that £15 per sq ft, the figure first mentioned, could not be
supported in local conditions and that £20 per sq ft was questionably supported
but if Mr Beckett had applied the knowledge expected of a surveyor he would
have appreciated that just under £7,000 was a reasonable offer and would have
advised acceptance. An expert witness for the defence, Mr G C Altman [FRICS],
wrote in support of the view that £6,000 was a fair rent. Accordingly, despite
Mr Taylor’s view, I accept Mr Beckett’s evidence about the reasons why he did
not accept the offer and hold that to be proper and reasonable in the
circumstances.
According to
the plaintiffs, Becketts, in following the course they did, failed to advise
the plaintiff of the danger that the rent might be fixed much higher than
expected. I find that at the first meeting with the Rajdevs, Mr Beckett
explained that a surveyor might fix the rent lower than expected but he might
fix it higher and this was a risk that had to be accepted. I am satisfied that
Mr Rajdev senior fully understood the position.
I turn,
therefore, to the first substantial ground of the plaintiff. Upon this I
received expert evidence on both sides. The principal expert witness for the
plaintiff was Mr Taylor and in his report he dealt with the course of the
correspondence. The gist of his evidence was that despite the fact that the
figures in the correspondence were without prejudice they drew to the attention
of Mr Ferrari the fact that the maximum required by Stimsons was £7,500 and
that they were prepared to settle for a little less than £7,000.
In oral
evidence, he said it would have been better than nothing to disclose the first
figure put forward by Stimsons, that is the £8,000. He says that the objection
to Mr Ferrari should have been more forcefully put. I reject that evidence and
accept Mr Beckett’s reasons, which I have mentioned above, why he left the
making of objections to Mr Forbes Harris. Mr Taylor points out that Mr Ferrari
had warned the parties in his letter of August 26 that time was of the essence
and that being so, he says, Becketts should have prepared representations in
draft and that they should have been lodged within the time specified by Mr
Ferrari or confirmation definitely should have been obtained from him that representations
would be late. In particular, Becketts should have investigated thoroughly a
possible local comparable, premises of which Pickfords were tenants where they
had been compelled to accept a higher rent because they had failed to put in a
counternotice under the Landlord and Tenant Act. When it became clear on
October 10 that Mr Ferrari was going to proceed, Becketts should have put in
representations, according to Mr Taylor.
Expert
evidence for the defence was given by Mr Altman. His evidence was to the effect
that Mr Beckett had been the victim of very unusual behaviour by Mr Ferrari in
just going ahead and fixing the rent without taking steps to see that
representations were made. Nobody could have conceived that negotiations would
become impossible after Mr Beckett and Mr Ghai had returned from holiday. The
fact that the landlord might refuse to negotiate with Mr Beckett but would go
ahead for a determination was foreseeable in one sense but was not in the
reasonable contemplation of a surveyor in Mr Beckett’s position. Mr Ferrari
would be expected to reply to the points raised and the evidence of Mr Forbes
Harris gave some support to that. When asked why Stimsons had not put in
submissions, he said that he had not expected Mr Ferrari to proceed until the
basis of apportionment had been agreed. Mr Ferrari had not replied to letters
on that subject. But he said that it had occurred to him, as he put it, as he
went along, that the risk was that Mr Ferrari might proceed.
On September
10 Mr Forbes Harris was told in a telephone conversation that the head
landlords would not negotiate and would require Mr Ferrari to fix a rent. Upon
hearing that, Mr Forbes Harris would not negotiate. It follows that he would
not concur in any agreement to extend Mr Ferrari’s time-limit under the rent
review clause. I understand the reason was that he wanted the two
determinations to proceed together.
Mr Taylor
accepted that Mr Ferrari’s behaviour was surprising, but he knew of two similar
cases. Mr Ferrari was constrained by the time-limit of two months to act as he
did. Mr Beckett accepted that in this case he did not, by reminders in his
diary or flagging the file or any other method, take any steps to keep the
time-limit in his mind. I accept that Mr Beckett was not limited to going on
holiday, since he expected to be able to negotiate on his return. I also accept
that he could properly take the view that he could not rush into negotiations
on his return, as this might be taken as a sign of bargaining weakness,
although I think as a matter of judgment he might have been better to correct
Mr Ghai’s acceptance of Mr Beckett’s first offer as producing £4,600.
On September
10, however, Mr Beckett knew that there would be no negotiation and that the
rent would be fixed by Mr Ferrari unless he could be persuaded to the contrary.
The issue whether the landlord would put up the shutters on negotiations was
now not a question of foreseeability; it had happened as a fact. Although Mr
Ferrari did not make it clear until his letter of October 10 that he would not
withdraw, Mr Beckett had no definite information which would disqualify Mr
Ferrari from acting. If he had the time-limits in mind he ought to have
realised that submissions were likely to be necessary. On that basis I believe he
ought to have put in submissions by the date of October 3 fixed by Mr Ferrari,
expressing them to be without prejudice to the contention that Mr Ferrari
should withdraw.
I reach this
conclusion for the following reasons. Mr Beckett knew the importance to his
client of obtaining the lowest possible rent. The issue whether the business
would continue to be viable depended on this. He had no firm grounds for
supposing that Mr Ferrari would withdraw or that he could be compelled to
withdraw, and Mr Ferrari did not withdraw. Mr Beckett knew that Mr Forbes
Harris would not negotiate and that he would not extend the time for
determination. I think Mr Beckett ought to have taken into account the
foreseeable possibility that the head landlord would put in representations, or
had done so, although these would consider the premises in the head lease as a
whole and would not simply aggregate the rent for the parts. They would be
likely to put forward a high figure overall which might be reflected in a high
rent for the property. He should have guarded against these risks by putting in
representations.
It was
suggested by Mr Taylor, as I have said, that when the alarm bells began to ring
loudly when Mr Ferrari said he was going to inspect the premises, two courses
should have been followed. First, Mr Ferrari should have been refused access
for inspection. I reject that point. Mr Altman said correctly that Mr Ferrari
could then have made his decision without an inspection or he could have made a
sufficient inspection simply by going into the shop. Second, Mr Beckett should
at least have put in a letter saying Mr Forbes Harris suggested £8,000 and then
£7,500 and then a little under £7,000. Mr Ferrari would not have ignored these
and they would have at least have put a ceiling on his determination. I reject
that suggestion. Mr Beckett might expect to get less than that; he would not
wish to appear to accept the landlord’s view by putting in the landlord’s
figure. A different question is whether he could have put in full
representations late. In my view, he would probably take the view that there
would be no purpose in doing that. Mr Ferrari was appointed as an expert and
not as an arbitrator dependent on evidence. He had fixed a time-limit for representations.
I believe he would have ignored any representations, and ought properly to
ignore any representations put in unilaterally on the eve of the time-limit of
two months expiring.
So I find Mr
Beckett was simply negligent in not putting in representations between
September 10 and October 3, the date fixed for representations. I reject the
allegation that he should have put them in thereafter.
I now turn to
the question of damages. It is common ground that the rent of £9,250 was much
higher than could be justified. The question was, what was the proper open
market rent as at March 25 1986? That
question has no certain answer. Mr Altman for the defence put it at £6,000. Mr
Taylor put it at about £7,000. I think the latter is the figure I should take
having regard to all the circumstances, including the fact that Mr Ferrari was
accepted as being an experienced valuer and he fixed a very high rent.
On that basis,
both expert witnesses agree that the value of the lease as at March 25 1986
with a rent of £9,250, and its value with a rent of £7,000, was a reduction in
value of £8,100. I accept that figure. Further or in the alternative, damages
are claimed on the following bases: the difference between the rent paid of
£9,250 until September
a little below £7,000 until September 9 1988. The expression ‘a little below
£7,000’ cannot be quantified, but if the figure is taken as £7,000 this is a
matter of arithmetic, but I believe that this process would not accurately
state the position. Mr Altman told me that a reasonable rent for the premises
might well have been £9,250 by September 1988 and that a purchaser at that date
would take this figure into careful consideration.
Having calculated
the difference in rent, it was said there should be added to the resultant
figure the difference between the value of the plaintiff’s business, including
the risk of an open market rent, market value or a little lower than £7,000 for
which the business was worth, and £30,000, the price for which the business was
sold on September 9 1988. In regard to this method of calculating damages, I
was referred to McGregor on Damages, 15th ed, paras 330 to 364, dealing
with damages for the loss of opportunity, the opportunity in the present case
being the loss of the opportunity of selling the business encumbered only with
a reasonable rent.
I have come to
the conclusion that this method of calculation would have to be covered in the
alternative rather than be added to the figure of £8,100 which I have accepted.
There would be an element of duplication in the reduction of the value of the
lease and the reduction in the value of the business. There would also be a
duplication between the reduction in the value of the lease and the difference
between the two rents as the first limb of the alternative calculation, but
even as an alternative I reject the second method of calculating the claim. Mr
Taylor in his report said that a buyer would be concerned with profits. The
profits would have been better at between £2,250 and £3,250 but for the
excessive rent. An established business might attract a price in the region of
three times the adjusted net profit, so the reduction in the value of the
business was between £6,750 and £9,750. That calculation is not, however, the
damages as claimed and I do not think that Mr Taylor’s calculation can be
adapted to fit the claim.
First of all,
there is some doubt whether the business would have been viable at a rent of
£7,000. Mr Rajdev said that it would not have been viable at a rent of £6,000;
it would have had to be sold. It is true that his view was reached taking
account of the heavy burden of debt incurred for the purchase of the business,
but there were a number of other factors, as Mr Rajdev senior said — profit
margins in confectionery and papers and the like are inflexible and are fixed
by the suppliers. The shop was very small. Mr Rajdev junior worked very hard,
but a plateau of turnover of about £140,000 per annum was reached. Gross
profits between £28,000 and £29,000 were achieved. It became clear that after
allowing for rent and rates, heating and lighting, insurance, and something for
wages since the owner cannot be there all the time and keep the books, the
business would really only be viable to somebody with cash for the purchase
price and who did not need to borrow.
On this basis
the sale price of £30,000 in September 1988 was expected. There is no
acceptable evidence about what the sale price would have been then or at any
earlier date with a rent of £7,000, so I cannot calculate satisfactorily the
fall in the value of the business. It is not sufficient to say that the profits
would have been greater at a lower rent. This is no doubt true, but it does not
cover the point that even at a lower rent the business might still have been an
unattractive proposition.
Accordingly, I
hold that the damages are £8,100.
