Appointment of arbitrator or expert by president of the RICS — Procedure questioned but held to be ‘sensible and right’ — The case arose out of a rent review clause in a lease which, after giving the landlord the right to serve a six months’ notice requiring a review, went on to provide that, in default of agreement between the landlord and tenant within three months of the expiration of such notice, the question of the fair rack rental value of the demised premises should be determined by an independent surveyor to be appointed, in the absence of an agreed nomination, by the president — The appointee was to act as an expert, not as an arbitrator — Tenants, on hearing of landlords’ intention to apply to the president for an appointment, objected on the grounds (1) that they were contemplating court proceedings for the construction or rectification of the lease, and (2) that the appointment would be premature — The second ground was based on a submission that, as a matter of construction, it was correct for a party to apply to the president for an appointment only if the parties had failed to reach agreement on the rent before the expiry of the three months following the expiry of the landlords’ six months’ notice — The president replied that it was not his practice to enter into disputes between the parties over the construction of a lease and that he would proceed to make the appointment unless restrained by an order of the court — The tenants then issued a writ, joining the landlords and the president as parties, seeking an injunction restraining the president from making the appointment — During the trial of this action various different constructions of the review clause were canvassed, including suggestions that there was no reason why negotiations between the parties should not run concurrently with the investigation by the expert and that ‘within three months of the expiration of such notice’ meant three months before the expiration — Hoffmann J, however, pointed out that it was not for him in these proceedings to decide between competing constructions, but to determine whether an injunction should be granted against the president — Held, dismissing the motion, that there was no cause of action against the president — He owed no duty to the parties to a rent review clause in these circumstances to refrain from making an appointment — A person who considered an appointment void could apply to the court for a declaration in proceedings to which the president would not have to be a party — If a party, fearing prejudice, wished to prevent a valuer from proceeding immediately with a valuation he could request him to wait and, on a refusal, take proceedings in which the valuer, but not the president, would be a party —- The suggestion that the president should, in case of objection, await the outcome of court proceedings before making an appointment would make him a pawn in the tactical moves between the parties — The present procedure was correct — Motion dismissed
No cases are
referred to in this report.
This was a
motion by United Co-operatives Ltd, tenants of a department store in Lancaster,
as plaintiffs, seeking an injunction against the president of the RICS
restraining him from appointing a surveyor as expert to determine the fair rack
rental value under the rent review clause of a lease of which the Sun Alliance
& London Assurance Co Ltd were the landlords. The Sun Alliance were named
as the first defendants and the president, Donald Troup, as the second defendant
to the proceedings.
Edward Cole
(instructed by Addleshaw Sons & Latham, of Manchester) appeared on behalf
of the plaintiffs; Kim Lewison (instructed by Maples Teesdale) represented the
first defendants; R J Furber (instructed by Linklaters & Paines) represented
the president.
Giving
judgment, HOFFMANN J said: This motion raises an important practical point
concerning the functions of the president of the Royal Institution of Chartered
Surveyors in appointing an arbitrator or an expert pursuant to a rent review
clause.
The plaintiffs
are the tenants of a department store in Lancaster. They hold under a lease
from the first defendant — the Sun Alliance & London Assurance Co Ltd —
which was granted for a term of 150 years less 10 days from June 24 1980. It
contained provision for five-yearly rent reviews. The original rent was
£201,875 pa, but the rent review clause gave the landlords the right to serve a
notice requiring a review in the first instance from January 5 1987. That
notice had to be given not less than six months earlier and the landlords duly
gave notice on June 17 1986.
The review
schedule provided that the new rent was to be the fair rack rental value of the
premises at the review date. This was defined as the greater of two figures
arrived at in alternative ways. The first was the application of a formula to
the letting values of the zone A parts of shop properties in the immediate
neighbourhood of the premises. The second was the fair rack rental value of a
department store of comparable size and location in a comparable town or city
in England.
It appears
from the correspondence between the surveyors that those two methods of
calculating the fair rack rental value are likely to produce very different
results. The rental values of shops in the neighbourhood in Lancaster seem to
have gone up a great deal more than the rental values of department stores in
the country generally. According to the tenants’ surveyors, a valuation
according to the shop formula will produce a rent in the neighbourhood of £1m whereas
a valuation according to the department store formula will result in a rent of
only £200,000 or £300,000.
The tenants
consider that there must be something wrong with these provisions of the lease
and are said to be contemplating proceedings in the High Court for either
construction or rectification of the schedule.
On October 21
the landlords made an application to the president of the Royal Institution of
Chartered Surveyors for the appointment of an independent expert to determine
the fair rack rental value in accordance with the schedule. The provision for
the appointment of an independent expert is contained in the schedule in the
following words. After providing for the six months’ notice requiring a review,
the schedule goes on to say:
And thereupon,
in default of agreement in writing between the landlord and the tenant within
three calendar months of the expiration of such notice, the question of what
shall be such fair rack rental value of the demised premises aforesaid for the
time being shall be determined by an independent surveyor to be nominated by
the landlord and the tenant jointly, or if they shall fail to agree upon a
nominee, then at the request of either of them, by the president for the time
being of the Royal Institution of Chartered Surveyors, and such independent
surveyor shall act as an expert and not as an arbitrator and his decision shall
be final and binding on both parties.
When the
tenants were notified of the landlords’ intention to apply for the appointment
of an independent surveyor, they wrote to the president of the Royal
Institution of Chartered Surveyors and asked him not to proceed. The tenants
said that the appointment would, for two reasons, be premature: first, because
they were contemplating proceedings for construction or rectification, and it
would not be possible for an expert to determine the rent until those
proceedings had been concluded. Second, they said that the appointment was
premature in accordance with the timetable of the schedule which I have read.
The tenants submit that upon its true construction the schedule allows the
parties three months after the expiration of the six months’ notice to
arrive at an agreement as to the rent. It is only after that period has expired
without agreement that it is proper for one or other of the parties to apply
for the appointment of an expert. In this case, the application was made on
October 21 1986, well before the notice had expired.
The president
replied that it was not his practice to enter into disputes between the parties
over the construction of the lease. If, according to the terms of the lease, he
was the party who had the power to appoint a surveyor, he would, at the request
of either party, proceed to do so. The president therefore said that unless the
parties otherwise agreed, or unless he was restrained by an order of this
court, he would proceed to appoint a surveyor.
The tenants
responded by issuing a writ joining both the landlord and the president as
parties, and by this motion seek an injunction against the president
restraining him from proceeding to appoint a surveyor.
The question
of whether, on the true construction of the schedule, a valid application for
the appointment of a surveyor can be made before three months after the
expiration of the notice is not an easy one. Mr Cole, for the tenants, submits
that although the language of the schedule does no more than postpone the
determination by the surveyor until after the three-month period, it must also
be implied that the surveyor shall not be appointed or act within that period.
Otherwise, he says, the parties may be put to the expense of making submissions
to the surveyor which turn out to have been unnecessary because they are able
within the three-month period to agree upon a rent.
Mr Lewison,
for the landlords, on the other hand, says that there is no reason why
negotiations for the agreement of the rent should not run concurrently with the
investigation of the matter by the expert. The knowledge that the expert is
ready to make his determination at the expiry of the three-month period may
concentrate the minds of the parties and achieve an earlier agreement.
Furthermore, Mr Lewison says that the language of the schedule, which postpones
the determination by the expert until a period ‘within three calendar months’
of the expiration of such notice, does not mean three months after such
expiration. In his submission, ‘within three calendar months of the expiration
of such notice’ means three months before it expires. That, he says,
makes commercial sense because it leaves three months for the expert to do his
work before the rent review date. On the tenants’ submission, a disagreement
between the parties will inevitably produce a period after the rent review date
during which it is not known what the review rent is going to be. It is true
that the landlords will subsequently be able to recover the difference in rent
retrospectively as from the review date, but they will not be entitled to
interest on the money.
I do not, as I
have said, find these questions of construction easy, and therefore do not
propose to determine them today. The important question is whether in
circumstances such as this, which must frequently occur, a party to a rent
review clause should be entitled to injunctive relief against the president of
the Royal Institution of Chartered Surveyors.
The president
has filed evidence as to the practice which he follows in making such
appointments. He says that a great number of applications are made each year.
In 1985 there were 7,664. He has prepared standard documentation for dealing
with the applications. There are standard forms of application and standard
forms of reply. When an application is received, his staff check the lease to
see whether it gives the president a power of appointment. If it does, his
practice is to look no further and make an appointment if either party asks him
to do so. He does not consider it his function to determine any legal questions
which may arise in the course of a rent review. Indeed, one can see that if he
were to attempt to do so, it would add a great burden to the administration of
his office.
Mr Furber, who
appeared for the president, submitted that there is no legal relationship
between the tenant and the president which would entitle the tenant to an
injunction. There is certainly no contract between them. It may be — though I
express no opinion on this point — that the president would owe some duty of
care in selecting the person appointed to be valuer. But, Mr Furber says, he
owes no duty as to whether to make an appointment or not. If he makes an
appointment it will be either valid or void. If it is valid, the tenant can
have no complaint. Nor will the tenant be prejudiced if the appointment is
void. The standard form of application for appointment requires the applicant
to pay a non-returnable fee of £70 plus VAT and to undertake responsibility for
payment of the professional fees and costs of the surveyor appointed.
Appointment does not, therefore, in itself involve the non-applicant party in
any expense.
If the
non-applicant party considers that the appointment is void, he can apply to the
court for a declaration to this effect in proceedings to which the president
would not have to be a party. If he considers that it would involve him in
unnecessary expense or cause him prejudice if the valuer were to proceed
immediately with the valuation, it would be open to him to ask him to wait and
if he should refuse, to apply to the court in proceedings to which the valuer
may be a party, but not the president. In practice, that would seem to me a
much more desirable state of affairs. The president, considering the number of
cases passing through his office, is not in a position to enter into the merits
of whether the determination should or should not be delayed. The valuer, on
the other hand, will make himself acquainted with the facts of the individual
case in which he has been appointed and can form a view as to whether the
request for delay is bona fide or merely frivolous and vexatious. The president
says in his evidence:
In my
experience, the appointed surveyor will usually await the determination by the
court of any genuine and important legal disputes before proceeding himself, if
any party wishes him to do so.
Mr Cole
submitted that the president should change his procedure. He acknowledged that
it would be difficult for the president to enter into the merits of each case,
but argued that he should reverse the policy which he presently adopts. Instead
of making an appointment and leaving it to the parties to deal with the valuer,
he should in case of objection refrain from making an appointment until the
matter has been determined by the court.
This practice
would, in my judgment, make the president simply a pawn in tactical moves
between the parties. It would mean that the valuation procedure would
inevitably be brought to a halt by any objection, whether frivolous and
vexatious or not. The other party would be left to take the initiative by going
to court to get it started again. If, on the other hand, it is left to the
valuer, subject to any legal proceedings, to decide whether to proceed or not,
he will be in a position to make an informed judgment as to whether there are
genuine grounds for holding up the valuation or not.
In my
judgment, the president’s procedure is sensible and right, and he owes no duty
to the parties to a rent review clause not to make an appointment. The
plaintiff therefore has no cause of action against him and the motion must be
dismissed.
May I conclude
by saying that I thought that this motion was extremely well argued by all
three counsel and I am very grateful to them.
