The court battle this week between electrical retailer Currys and John Martin, senior partner at Knight Frank, threw up some interesting points for valuers working on rent reviews.
Martin, who was cleared of negligence in the case, undertook a valuation of a Currys store in Shrewsbury, Shropshire. His valuation used three comparable units, two before the date of the rent review and one after. Ten months after the date of the rent review, the companies occupying all three units were in liquidation. However, this was not taken in to account in Martin’s valuation, which took place some months later.
The role of post-review transactions (the amount of rent paid on comparable units) against post-review events (such as insolvency or liquidation) is the subject of much debate among surveyors.
The right to use post-review transactions as admissible evidence for rent review purposes was recognised in 1983 in the case of Sagama NV v Penny Le Roy Ltd [4] 1 EGLR 109.
According to Fraser Cleary, a partner at King Sturge, an experienced valuer will always weight such evidence: “The question is not do you attach any weight to those events but how much weight,” he says. “It often comes down to whether the transactions are reasonably foreseeable.”
Post-review events, however, are more controversial, and are not generally accepted as evidence. However, according to solicitor Jeremy Grose, who acted for Currys in the Martin case, the judge left the door open for such events to be accepted as evidence in the future.
“He told us that, although in this case the post-review event was not admissible, he could foresee certain circumstances in which it might be,” Grose said.
According to Andrew Pollard, a barrister at GVA Grimley, this was a typically non-committal judicial reaction, adhering to the judgment in National Grid v M25 Group Ltd [8] 2 EGLR 85: “It is not at all surprising the judge said that. In the National Grid case, which looked at the role of experts, the judge said expressly that legal matters were for the courts, but the question of what to include in the valuation criteria should be left to experts.”
Chris Osmond, a director at CB Hillier Parker, said the courts would almost certainly be considering the point again: “The perceived wisdom is that post-review events are irrelevant. For example, if a bomb blows up the building after the review date, it is not relevant to what the rent should be on that date. However, where companies become insolvent later, the line is harder to draw, as that is obviously something that could be related to the rent they were paying.”
In the end, the role of the expert is one of art and experience. To date, no expert has been successfully sued for negligence on a rent review. The alternative is for landlords and tenants to use arbitrators, who must decide purely on the evidence in front of them, and who are subject to appeal. Meanwhile, the fine lines governing rent reviews are set to be a matter for continuing debate.
PLS News 30/9/99
