Landlord and tenant — Rent review clause in lease of commercial premises — Criticism of valuation of independent valuers acting as experts — Appeal from Supreme Court of New South Wales — Appellant tenants complained that the valuation was vitiated by an error in regard to the area on which the assessment was based — It had been agreed at the beginning of the lease that an area of about 314.4 sq m of selling space on the ground floor should be removed in order to allow lengths of timber on the lower ground floor to project into the air space thus made available by the sacrifice of the ground-floor area — The independent valuers, in assessing the rent of the premises, took into account the area of 314.4 sq m in question on the footing that this area should not be ignored merely because the tenants chose to use it as air space for the accommodation of timber on the lower floor rather than as selling space for the benefit of the floor above — It was submitted by the appellants that it was wrong to attribute a value of 7 dollars per sq ft to a ground floor which included 314.4 sq m of air space — Held by the Judicial Committee that there was no discernible error of fact or law in the valuation — The 314.4 sq m had been removed for use by the lower-ground floor to suit the purposes of the tenants — The Judicial Committee considered ‘that it would be a disservice to the law and to litigants to encourage forensic attacks on valuations by experts where those attacks are based on textual criticisms more appropriate to the measured analysis of fiscal legislation’ — Appeal dismissed
No cases are
referred to in this report.
This was an
appeal by tenants, A Hudson Pty Ltd, from a decision of the Court of Appeal of
New South Wales allowing an appeal from Waddell J in the Equity Division of the
Supreme Court who had decided in favour of the tenants at first instance. The
landlords of the subject premises, which were situated at Miranda, were the
Legal & General Life of Australia Ltd.
T Cullen QC
and R Walford (instructed by Stevenson Harwood) appeared on behalf of the
appellants; A M Gleeson QC and H J Mater (instructed by Fisher Martineau)
represented the respondents.
Giving the
judgment of the Judicial Committee, LORD TEMPLEMAN said: The appellant tenants,
A Hudson Pty Ltd, seek to set aside a rent review valuation. They succeeded
before the Equity Division of the Supreme Court of New South Wales (Waddell J)
and failed before the Court of Appeal of New South Wales (Mahoney, Priestley
and McHugh, JJ A).
By a lease
dated April 2 1980 commercial premises at Miranda were demised to the tenants
for a term of 10 years beginning on March 31 1980 at a rent subject to review
every two years on the basis of:
The current
annual open market rental value of the demised premises based on a lease
between a willing lessor and a willing lessee granted with vacant possession
and taking no account of any goodwill attributable to the demised premises by
reason of any trade or business carried on therein by the lessee and in all
other respects (except as to rent payable) on the terms covenants and
conditions of this lease.
In default of
agreement the rental value of the demised premises was directed to:
. . . be
referred for the decision of a qualified valuer . . . acting as an expert and
not as an arbitrator and the decision of such qualified valuer . . . shall
accordingly be final and binding on the parties to this lease.
Pursuant to
the review clause, the rent payable from March 31 1982 was referred to
Henderson & Horning Pty Ltd (‘the valuers’) and by a report dated June 10
1982 after setting out matters relevant to their valuation they made the
following
Assessment
In
determining the market rental value we have had regard to the rents being
achieved for other larger premises and have concluded that ‘the current annual
open market rental value of the Demised Premises’ as at March 31, 1982, was ONE
HUNDRED AND FORTY ONE THOUSAND AND TWO HUNDRED DOLLARS ($141,200.00) per annum
calculated as:
|
Ground floor |
13,100 square feet @ $7 |
$ 91,700 |
pa |
|
Lower ground |
11,000 square feet |
$ 49,500 |
pa |
|
floor |
@ $4.50 |
||
|
$141,200 |
pa |
Equivalent to an average rate of $5.86 per square foot per annum for
an area of 24,100 square feet.
As appears
from that report, the demised premises consist of a lower ground floor and a
ground floor which by the terms of the lease are to be used only for the
purposes of a ‘Builders and Handymans Supply Store’. As to the ground floor,
the valuers’ report noted correctly that ‘an area of about 314.4 square metres
. . . has been removed by the lessee with the lessor’s consent’. The report
stated that ‘this area has been included in the rentable area of this floor for
the purposes of this assessment’. It is common ground that it suited the
tenants at the beginning of the lease to extend the air space above part of the
lower ground floor in order to accommodate lengths of timber which exceeded the
height of the lower ground floor and to sacrifice 314.4 sq m of selling area in
the ground floor. It also appears from the assessment that the valuers with
full knowledge of what had happened chose to attribute $4.50 per sq ft for the
whole of the lower ground floor irrespective of the height of the lower ground
floor and chose to attribute to the ground floor the overall rate of $7.00 per
sq ft ignoring the fact that as to 314.4 sq m a part of the area was used for the
benefit of the lower ground floor.
The tenants
now object to the valuation because they say that the ground-floor area which
had been removed for the benefit of the lower ground floor, amounting to 314.4
sq m, should not have been taken into account in assessing the rent or should
not have been taken into account at the rate of $7.00 per sq ft. But the
valuers could not ignore the area of 314.4 sq m merely because the tenants
preferred to use that area as air space for the benefit of the lower ground floor
rather than as selling space for the benefit of the ground floor. The valuers
were entitled to consider the rent obtainable from a willing lessee having
regard to the actual use of the disputed area of 314.4 sq m and having regard
also to the possible use which a willing lessee might make of the premises
after restoring the 314.4 sq m to the ground-floor area. The valuers, after
correctly setting out all the facts, concluded with the assessment to which
objection is now taken.
On behalf of
the tenants Mr Cullen said all that was possible to say in criticism of the
valuers’ report and endeavoured from the contents of the report and from
alleged omissions from the report to demonstrate that the valuers must have
been mistaken in attributing $7.00 per sq ft to a ground floor which included
314.4 sq m of air space used in connection with the lower ground floor. Their
lordships are not persuaded that the valuers made any mistake in fact or in
law.
removed from use in the ground floor and adapted for use by the lower ground
floor to suit the purposes of the tenants. There being no discernible mistake
in the valuation their lordships are not concerned to consider the kinds of
mistake which might justify interference by the court with the valuation of an
expert
Mr Cullen also
sought to raise an argument which was available but was not deployed in the
courts of New South Wales, namely that the valuers took into account an
increase in rent which might have been obtained if the tenants had sought and
obtained permission from the landlords and permission from the local planning
authority for a change of use of the demised premises. But their lordships do
not deduce from the report that the valuers exceeded the bounds of determining
the rent which a willing lessee would pay for the demised premises on the terms
of the lease.
In general
their lordships consider that it would be a disservice to the law and to
litigants to encourage forensic attacks on valuations by experts where those
attacks are based on textual criticisms more appropriate to the measured
analysis of fiscal legislation.
Their
lordships will humbly advise Her Majesty that this appeal should be dismissed.
The appellant must pay the respondent’s costs.
