Negligence –– Solicitor –– Damages –– Part II of Landlord and Tenant Act 1954 –– Solicitors failing to make application for grant of new tenancy –– Claimant tenant seeking damages –– Assessment of damages –– Annual value of premises –– Value of “contracted-out” lease –– Appropriate multiplier –– Addition for loss of disturbance compensation –– Whether relocation costs payable
By a lease dated March 1994, the claimant was granted a term of shop premises, protected by Part II of the Landlord and Tenant Act 1954, until September 1997. The rent was £51,000 and there was no break clause. The claimant used the premises, which had the benefit of a Class A3 planning permission, for its business of making sandwiches for sale in the shop, and for a cooked-food business that supplied the claimant’s other premises. The landlord served a notice, dated May 1997, on the claimant, determining the tenancy under section 25 of the 1954 Act. A counternotice was served in June 1997. An originating application seeking the grant of a new tenancy should have been made by the relevant date of September 1997, but the defendant failed to make such an application. The claimant then entered into a lease of the premises until June 2006, at a rent of £84,000 pa, contracted out of the 1954 Act and subject to a landlord’s six-month break clause. Because of the uncertainty of security of tenure, the claimant ultimately acquired a long leasehold interest in a Class A3 property, although in a less favourable position. The claimant sought damages for negligence against the defendant, which admitted negligence.
Held: Damages of £315,000 were awarded. Had an application been made for the grant of a new tenancy, and having regard to the known plans of the landlord to redevelop the building containing the premises, the court would probably have granted a four-year term by April 1998 without a landlord’s break clause. Using a years’ purchase multiplier of 2.75, and an adjusted profit figure for the premises, in September 1997, of £95,000 pa, gave a product of £261,250. From this was to be deducted the value, £30,000, of the lease that the claimant had been forced to take, giving a sum of £231,250. The loss of disturbance compensation of £146,000 under the Act was first discounted, to allow for deferment in its receipt, and then added to this sum. The resulting sum was rounded up to £315,000. The costs of relocation to the new premises were not included in the assessment of damages.
The following cases are referred to in this report.
Adams v Green [1978] 2 EGLR 46; (1978) 247 EG 49, CA
JH Edwards & Sons v Central London Commercial Estates; Eastern Bazaar v Central London Commercial Estates[1984] 2 EGLR 103; (1983) 271 EG 697
O’May v City of London Real Property Co Ltd [1983] 2 AC 726; [1982] 2 WLR 407; [1982] 1 All ER 660; (1982) 43 P&CR 351; [1982] 1 EGLR 76; (1982) 261 EG 1185, HL
This was a hearing to assess damages in a claim by the claimant, Aran Caterers Ltd, against the defendant, Stepien Lake Gilbert & Paling.
Stephen Shaw (instructed by Merriman White) appeared for the claimant; Glenn Campbell (instructed by Beachcroft Wansbroughs) represented the defendant.
Giving judgment, JUDGE HOWARTH said:
In this case, I am going to give judgment for the claimant for a sum of £315,000.
This case concerns one of the most difficult questions that a court ever has to answer. The question can be put fairly shortly in two words: how much? The answer, however, is never as simple as the question. I had better state the basic outline facts and then come to the conclusions that I have reached.
The hearing that I have is a hearing simply to assess the damages payable to the claimant by the defendant in respect of admitted professional negligence on the part of the defendant, arising out of the defendant’s failure to make an application for the grant of a new tenancy of business premises within the time limits prescribed by the Landlord and Tenant Act 1954. There is already judgment for the claimant; all that remains is to assess the damages payable. I set out history and background of this matter.
On 9 March 1994 the claimant entered into a lease in respect of premises at 76 and 77 Old Broad Street, London EC2. That was for a term from 29 September 1993, expiring on 28 September 1997. It was a fully protected lease under the provisions of Part II of the 1954 Act. The rent payable was £51,000 pa, and (an important matter in this case) there was no break clause.
The claimant occupied those premises, as its name would suggest, for the purpose of carrying on a catering business. The business that it carries on is a very individual type of business, because it involves not merely a shop, although the premises are shop premises, but also involves the premises being used as a base from which other premises and customers are directly supplied. The basic business that the claimant carries on can be divided into two halves. There is a sandwich business, which consists of actually making up the sandwiches, if you are a customer from the street, while you are in the shop. It is not prepackaged sandwiches. You have your sandwiches made up freshly, there and then, and take them away. There is also a cooked-food business.
A considerable proportion of the claimant’s business derives from that cooked-food business, and that, in turn, brings me to an important feature in this case, and that is this: the subject premises have the benefit of a Class A3 planning permission. That, in the City of London, for this type of business, is not the sort of planning permission that you encounter very often. Planning permission of an A3 type for a restaurant, or something of that sort, is possibly much more common to come by. The evidence of Mr Cachioli, the director of the claimant company, in that behalf was unchallenged, and I accept it. It seems to me to be plain common sense when one goes round somewhere like the City of London.
It is also the case that the claimant has, at the moment, about nine retail premises, and, until last week, when it had to leave the premises at 76 and 77 Old Broad Street, it supplied those other retail premises with cooked food from 76 and 77 Old Broad Street. In addition, it has a strong, thriving business that consists of orders being put in and actually being delivered by the claimant company to customers, most of whom are regular, repeat customers, day in, day out. Some of those orders, no doubt, are for ready-made sandwiches, some are for hot food, and it is important, therefore, that the food arrives at the customer’s premises fresh and hot (if it is hot food). Thus, it is important to have a base within the “ring of steel” in the City, since it is a difficulty for vehicles from time to time, and, indeed, may be all the time, getting through that ring of steel, to come into the City, though not out of the City. Thus, the premises, in this case, for the claimant, were the lynchpin of its operation, the keystone in the arch; call it what you will, we all know what is meant. Without these, or similar, premises, the claimant’s business would quickly have to suffer an enormous change.
Going back to matters of history, it is apparent that both the landlord of the premises, which was, at the time, MEPC, a well-known commercial landlord, and the claimant company were well aware of the fact that a new lease would, in due course, in 1997, have to be negotiated. The landlord appointed its agent, George Trevor & Associates, and the claimant appointed its agent, Mr Smith, of Smith Melsack (as it then was) as its agent. There was correspondence between the two. On 21 May 1997 George Trevor & Associates wrote a letter to Mr Smith, setting out proposals for a new lease. Those proposals, however, proceeded upon a false basis, namely that the existing lease was outside the security of tenure and compensation provisions of the 1954 Act. But what was proposed was that there should be a term, expiring on 23 June 2006, that the rent should be £73,1000 pa with an upward-only review at the end of the fifth year, and it was to contain a landlord’s option to break the term of the lease by giving six months’ notice, provided that the landlord intended to carry out redevelopment.
That particular offer was followed eight days later by the service of a section 25 notice by the landlord’s solicitor. That notice is dated 29 May 1997. As a result of the serving of that notice, the claimant company went to its solicitor, which is the defendant in this case.
A counternotice was served on 9 June 1997. The time for the issue of an originating application seeking the grant of a new tenancy expired, thus, on 28 September 1997. Unfortunately, no application was served by that date, and that is the negligence that is the subject matter of this action. It is true that, somewhat later, an application was issued, but, quite rightly, it was accepted that that application had no chance at all of success because the time limits under the 1954 Act are not capable of being modified by the court. These are strict time limits that have to be complied with. If they are not complied with, the benefit of the Act is lost.
Correspondence and meetings then took place between Mr Smith, on the one hand, and the landlord’s agent, on the other. Those ultimately produced an offer from the landlord for the grant of a new lease, but it was a new lease with a difference. It would, first of all, expire on the same date as already was suggested, 23 June 2006, but it was to be outside the security of tenure and compensation provisions of the 1954 Act. The rent, however, had gone up. The rent being asked was £85,000, again with an upward-only review at the end of the fifth year. It was also to contain the same “rolling-break” option as I have already mentioned, namely six months’ notice in the event of redevelopment being proposed.
It was a bitter pill to swallow, and Mr Smith, doing the very best for his client that he could, continued negotiating with Mr Trevor, when ultimately, on 17 November 1997, the landlord issued an ultimatum, which was to the effect that if the proposals set out in the letter of 7 November were not accepted by 5pm on 18 November, then everything was off, and they would want possession of the premises.
Ultimately, Mr Smith was able to negotiate something; really not much at all. He was able to negotiate a reduction on the rent from £85,000 pa to £84,000 pa. But, otherwise, that was the best lease that was obtainable. The claimant entered into that lease upon those terms, abandoning its belated application for the grant of a new tenancy.
That, in turn, left the claimant in a vulnerable position, because it did not know, and could not know, when its landlord might invoke the six-month break clause and bring its occupation of the premises in Old Broad Street to an end. It required premises with A3 planning consent to continue to carry on the type of business that it had been carrying on, and carrying on with considerable success, since the 1970s in parts of London, and it had become well known for that. Not surprisingly, Mr Cachioli and his co-shareholder in the company, Mr Terzaga, looked around to find alternative premises that had, ideally, the benefit of A3 planning permission. But if they had not got that, would they have the hope of ultimately getting it, so that if and when the six-month notice was served, they could carry on the company’s business with the benefit of A3 planning permission from other premises?
Now, undoubtedly, as I have already said, the claimant simply could not go along and take any premises that happened to be vacant, because for most of those premises the planners would not conceive of the grant of A3 planning permission. Ultimately, the claimant company found premises somewhat to the south of these premises, in a secondary trading position, known as Botolph Alley. That is not insignificant, since the subject premises themselves are in a prime trading position. They are opposite Liverpool Street underground railway station, a point where people come out onto the pavement. They are also close to a big office redevelopment that has taken place, known as the Broadgate Centre. There is thus, passing the existing premises, a considerable volume of passing trade. Not only that, even if it is not passing trade, the premises are seen by many people, and, if they want a sandwich, they may well go back to the premises they have seen that sell the sandwich, premises that they notice as and when they are going to and from work.
Botolph Alley is not in that sort of favourable position. It is in a narrow alleyway (and the photographs of the front of those premises are in evidence), which is approached by going up, I think, four steps from another street. At the other end of the alleyway are bollards that prevent vehicles going down it from that direction (of course, the steps have precisely the same effect anyway). They are in the general Eastcheap area of London, but that is not close to the premises that are the subject matter of this action. I do not think I need go much more into that matter. The basic fact is that, ultimately, Mr Cachioli and Mr Terzaga bought a long leasehold interest in these premises in Botolph Alley, and ultimately granted a lease of those premises, nos 2 to 4 Botolph Alley, to the company.
The history of the fitting out of those premises, and of the obtaining of planning consent, is in the papers. It is not challenged. It is a long, drawn-out history. Building work, as is frequently the case, took longer to complete than the builders, no doubt, originally gave Mr Cachioli reason to believe was the likely finishing date. I should add that, in the past, I used to sit in the Technology and Construction Court, and still am very familiar indeed with that particular scenario from those days. That, it seems to me, is all I need to say, save this: the judgment in fact in this case is dated 7 September 2000. I think, on 11 June, the result was that the Broad Street premises had to be closed, and, fortuitously, the premises at Botolph Alley were more or less, at that time, or a little bit before that time, ready for occupation on the part of the company. It was a close-run thing.
Now, what damages can the claimant recover? Before going into figures, I have to ask: what sort of lease would the court have awarded, or would the parties have negotiated, if, in fact, an originating application for the grant of a new tenancy had been issued by the defendant, on behalf of the claimant, by 28 September 1997? Of course, we have some guidance from the initial offer, which I have already read, that is the letter dated 21 May 1997, and a little bit of extra guidance can perhaps be found from the letter that Mr Smith wrote to his client on 30 May 1997, when he added that he put George Trevor right about the lease being a protected one. He thought that they might come back with a somewhat higher rent proposal.
Everybody in this case seems to accept that, ultimately, here a lease would be granted, having a rental of about £73,000 pa. There is clear evidence from Mr Cachioli, which I accept, that MEPC had told him that it planned to redevelop this building as a whole, and the public house next door to it, so as to create a larger office complex that would be built over the railway lines of what I assume to be the Circle tube line.
MEPC had told Mr Cachioli that the tenant of the public house had a lease that expired in 2006, and that, accordingly, it would not be intending to carry out that redevelopment until then. The other tenants in the building, as appears from the report of Mr Lock in this case, had leases, or were shortly to be granted leases, all of which expired on 23 June 2006 and all of which were contracted-out leases: that is to say there was no security of tenure under the 1954 Act, there was no compensation payable under the relevant provisions of the 1954 Act, and those leases would all have in them a break clause exercisable upon six months’ notice in the event of redevelopment. I am using the word “redevelopment” as a very loose general description, but I do not have the actual terms of each and every one of those leases before me in any event.
One of the problems that faces me in this case is that there is no evidence from MEPC before me. Either party could have obtained that evidence, albeit under compulsion. Neither has done so. Furthermore, MEPC, some time after the granting of the new lease to the claimant, sold the building to a new landlord. This was apparently done because MEPC had certain difficulties, which may well have affected the price of its shares on the stock market, or something of this sort, and its abilities to pay its debts as they fell due, or of its balance sheet solvency, or whatever it is, but it sold this building and several others for financial reasons of that sort.
Going back to September 1997, I have to ask the question: what length of term of lease would then have been granted by a court, and would such a lease have included any break clause at all? The provisions of the 1954 Act are simple in their direction and in their wording, but they do not actually provide a very clear answer to the questions I am asking. Section 33 of the Act provides:
Where on an application under this Part of this Act, the court makes an order for the grant of a new tenancy, the new tenancy shall be such tenancy as may be agreed between the landlord and the tenant, or, in default of such an agreement, shall be such a tenancy as may be determined by the court to be reasonable in all the circumstances, being, if it is a tenancy for a term of years certain, a tenancy for a term not exceeding fourteen years, and should begin on the coming to an end of the current tenancy.
That is the statutory provision concerning the length of the term. Section 35 deals with the other terms of the tenancy, and it is in these terms:
The terms of a tenancy granted by order of the court under this Part of this Act, (other than terms as to the duration thereof and as to the rent payable thereunder), shall be such as may be agreed between the landlord and the tenant or as, in default of such agreement, may be determined by the court; and in determining those terms the court shall have regard to the terms of the current tenancy and to all relevant circumstances.
That seems to give the court an almost unlimited discretion. But it seems quite plain that in regard to the length of term, the court would have paid particular regard to the fact that the term of the previous lease, which had come to an end, and which would be the subject of renewal, one of statutory renewal, that term was for four years. Equally, the court would have regard to the offer of a lease expiring on 23 June 2006. But I have the strongest suspicion that MEPC, by the time it had got to court, would not have been offering a term of that length, but would have been urging the court to grant a shorter term, since it would be aware of the fact that the term granted by the court might not contain a break clause.
I believe, doing the best that I can, that the court would be likely to order a new tenancy for a term of four years from the determination of the existing lease. When would that be? Well, if an application were lodged with the court on, say, 20 September 1997, there would need to be an answer put in by the landlord, a not very complex or difficult task, and a hearing date fixed and evidence obtained of comparables, for rent purposes, of all the usual things that go into those hearings. I would suspect that that hearing would not have taken place before December 1997 at the earliest.
Assuming, then, that a new tenancy is awarded, there would still, under section 64 of 1954 Act, as I understand it, have been a term of three months before that tenancy actually started, so that if one says the tenancy would run from, say, 1 April 1998, it does not seem to me that that puts the matter in any way unrealistically. It would thus expire at the end of March 2002. Would there be a break clause in it?
The test to be satisfied is to be found, first of all, in the decision of the House of Lords in the case of O’May v City of London Real Property Co Ltd [1983] 2 AC 726*. I go to the speech of Lord Hailsham in that case. In it, he said at pp740-741:
A certain amount of discussion took place in argument as to the meaning of “having regard to” in section 35. Despite the fact that the phrase has only just been used by the draftsman of section 34 [that was in relation to rent] in an almost mandatory sense, I do not in any way suggest that the court is intended, or should in any way attempt to bind the properties to the terms of the current tenancy in any permanent form. But I do believe that the court must begin by considering the terms of the current tenancy, that the burden of persuading the court to impose a change in those terms against the will of either party must rest on the party proposing the change, and that change proposed must, in the circumstances of the case, be fair and reasonable, and should take into account, amongst other things, the comparatively weak negotiating position of a sitting tenant requiring renewal, particularly in conditions of scarcity, and the general purpose of the Act which is to protect the business interest of the tenant so far as they are affected by the approaching termination of the current lease, in particular as regards his security of tenure.
* Editor’s note: Also reported at [1982] 1 EGLR 76
Now I have had cited to me, as one would expect, a number of cases concerning circumstances where the court either has, or has not, included a break clause as part of the terms of the order for the grant of a new tenancy.
The first of those that were cited is the case of Adams v Green [1978] 2 EGLR 46. That was a case where it may be that the landlord, somewhat unusually, got the sympathy vote: there are not many of those cases. The position was that the landlord owned a row of 12 shops in Peckham Rye (this related to one of those shops). All the other shops in the row had break clauses in their leases. The county court judge did not order a break clause in this lease. On appeal, the Court of Appeal allowed such a break clause, being a break clause that required the landlord to give two years’ notice, expiring on one of the usual quarter days, should he wish to demolish or reconstruct the premises. He could then, it being a term of 14 years that had been granted, in those circumstances obtain earlier possession.
In giving the leading judgment in that case, Stamp LJ said at p47E of the report:
It is, however, to be observed that the landlord would be entitled to object altogether to the grant of a new lease if he had immediate intention of redeveloping the property –– see section 30(1)(f) of the Act and I would have thought it not inappropriate to include in the proposed new tenancy agreement a provision reflecting the probability or likelihood or possibilities of development in the near future.
There are, in my judgment, several considerations to which the learned judge in the court below did not refer which persuaded me that he was wrong to conclude that because the property was not, in his view, right for redevelopment, there should be no rebuilding clause.
In the first place, there can no certainty regarding the future…
He then goes on to say what we all know, that the market is subject to fluctuations. The second thing he added, which I think falls to be taken into consideration, is that it was no part of the policy of the 1954 Act to give security of tenure to a business tenant at the expense of preventing redevelopment. He then continues:
It is no doubt correct that if the break clause inserted in the property comprised in the tenancy will be of less value, the property and the tenancy will be less value on the market than it otherwise would be. But as Denning LJ said in Gold v Brighton Corporation it was not part of the 1954 Act to confer on the tenant a saleable asset. It was primarily to protect him in the enjoyment of his business.
How far the judge was influenced by the consideration that the tenant’s tenancy would be of less value if the break clause was not included, I know not. Another matter which the learned judge appears not to have taken into account is this, namely that the unfairness to the tenant of including the proposed break clause can well be exaggerated. If the tenant’s submission that the property will not be ripe for redevelopment within the next seven years is well found, he will not be disturbed by the existence of the break clause during continuance of his seven year tenancy because the right to break will of course not be exercisable.
Furthermore, and this is another consideration which the learned judge appears not to have taken into consideration, if the break clause is included the tenant will nevertheless be protected by the terms of the Act itself from the effect of any notice not given bona fide for the purpose for which it is intended. For if the tenancy is determined by a notice it would be open to the tenant to apply for a new tenancy and the then landlords, in order to sustain an objection to the granting of a new tenancy, would have to prove the intention to redevelop. Nor does the judge notice that in the final resort, as counsel for the landlords pointed out, the tenant would be entitled to the compensation provided by the Act.
I now go to one other case, counsel will I hope forgive me if I do not mention every case they have cited to me, and that is the case of JH Edwards & Sons Ltd v Central London Commercial Estates Ltd [1984] 2 EGLR 103. Giving the judgment in the Court of Appeal, Fox LJ, after referring to O’May and the burden of proof that Lord Hailsham referred to in that case, went on to discuss a lot of the facts of the particular case, but he then added at p104:
If it is likely that the superior landlord for the time being may wish to develop the property, then (since it is not the policy of the 1954 Act to inhibit development), he should not be saddled with a lease which may prevent such development. In that connection a present intention to redevelop immediately is not necessary:… Accordingly, it seems to me that it must be wrong in principle, in the present case, to order the grant of new leases for such substantial periods as 12 and 10 years respectively without development “break” clauses. That has the effect of preventing development without the consent of the tenants during the period of the leases. I conclude, therefore, that the judge’s decision was wrong and that the matter is at large before us.
In considering what would be proper leases in the circumstances of this case I think that the predominant considerations are two. First, that so far as reasonable the lease should not prevent the superior landlord from using the premises for the purpose of development. Secondly, that a reasonable degree of security of tenure should be provided for the tenants. Those considerations are to some degree in conflict. The function of the court is to strike a reasonable balance between them in all the circumstances of the case.
He then went on to deal with particular considerations that affected that case, and concluded at p105A:
Having regard to the fact that the hotel has at present no firm proposals for incorporating [the subject premises], I think that a fair solution would be that the tenants should each be granted a new lease for seven years with (i) a rent review [after] the fifth year; and (ii)a redevelopment “break” clause… but so that the notice in writing [thereof exercising it presumably] shall not expire earlier than the expiration of five years from the commencement of the term.
Thus, that was not a rolling break clause at all, as in Adams v Green, but a once-only opportunity to serve a break clause, although it would become a rolling break clause during the last two years of the seven-year term.
I ask myself the question in this case: how would MEPC have sought to discharge the burden of persuading the court to change the terms of the claimant’s lease so as to include a break clause? Well, it would no doubt put forward the terms upon which the other tenants in the building were holding their leases, and it would no doubt also put forward evidence concerning its development proposal. But as soon as those development proposals were put before the court, and it became clear to the court that they were not likely to be in any way implemented until about 2006, my judgment is that once a four-year term had been fixed, the court would, on the balance of probabilities, grant a lease for four years, as I say, without any break clause in it at all.
The circumstances, no doubt, that would have been before the court concerning the expiry date of the public house lease would have made it perfectly plain that there was nothing unreasonable in making the grant of such a lease on those facts.
That finding means that I do not have to consider one of the hypothetical examples that was put before me by Mr Lock, on behalf of the defendants. Both sides brought expert evidence in this case. On the one hand, the claimant called Mr Emer, of BDO Stoy Haywards, to give evidence. The defendant called Mr Lock, who is a chartered surveyor with Christie & Co. The two experts did meet, and have been able to reach agreement on certain matters that have been put before me. Those seem to me to be three in number.
Those agreements are, first, that they agreed that the profits method of valuation, which has been used by each of them in their respective reports, was the most appropriate method by which to assess the value of the subject premises. Second, the agreed level of profitability, as at September 1997, was in the sum of £100,000 pa. Third, that the value of the subject premises with the benefit –– if that is the right word –– of the lease that was forced upon the claimant as a result of the negligence was £30,000 as at September 1997. Those are three agreed circumstances. I gratefully accept the benefit of that agreement.
I ask myself: what would the value of the business at 76 and 77 Old Broad Street have been had it been marketed as at September 1997, or shortly thereafter, once the terms of a new lease had been worked out, bearing in mind that there was a level of profitability of £100,000 pa? Mr Emer and Mr Lock have used different methods of valuation because they have different fields of expertise. I approach this matter, I hope in not too unsophisticated a manner, in this way: if the business had been marketed at the end of September 1997 with the benefit of a four-year lease, it would have been marketed through estate agents and not through accountants. If a purchaser who was negotiating to purchase the lease had engaged someone to negotiate with the selling agents, he would be likely to have instructed other estate agents. He would of course, if he were wise, have instructed accountants for the purpose of producing a report examining the accounts of the vendor. But I doubt whether the accountants would also have been fixed with the task of negotiation.
Accordingly, I think it likely that, in this scenario, both negotiators would adopt a years’ purchase method for calculating the right price, rather than a profit earnings ratio. That is not to say that the profit earnings ratio is not a very good way of coming to the same conclusion, but I do have the strong feeling that a years’ purchase would, in fact, be the method that would be likely to be adopted on the ground. If that is so, it seems to me that the court ought not to descend into theoretical exercises of a kind that are not likely to be used, as against exercises of a kind that were likely to be used.
Accordingly, I prefer Mr Lock’s method of valuation to that of Mr Emer, which I regard as being too theoretical in these circumstances. It would be appropriate if it were to value shares in a limited company; it would be appropriate if you were to value a share in a partnership. But it would not, in my judgment, be the appropriate way of valuing these premises with the benefit of the goodwill of a business.
If one thus goes to p88 in Mr Lock’s report and starts with a figure, does one deduct from the £100,000 the increase in rent that would inevitably have been suffered, namely £22,000. That is the increase from £51,000, under the old lease, to £73,000, under the new lease, that we envisaged would have been granted but for the negligence. I think that both vendor and purchaser would have had a view of profits that was directed to the future years that the purchaser would have the benefit of. That would be done as against the accounts’ evidence of past performance. That showed the net profits for the year ending 31 December 1994 as £81,193; for the following year, £110,407; for the next year, £88,157; and for the year ended 31 December 1997, £116,792. Of course, that last figure may not have been available at the time, but there would, I anticipate, have been management accounts,
Over the period from 1998 to the end of 2001, I have the firm view that both the purchaser and the vendor would have anticipated both increased turnover and increased profit from this business in Old Broad Street. Obviously, I think, the profit that they would envisage would have taken something of a blow in 1998, but would have, by the end of the term, increased to a far higher level than the best years of profits in the past.
Doing the best that I can, I would start, not with a figure of £100,000, but I would reduce it to £95,000. One then asks: by what years’ purchase figure do you multiply it? In my view, 1.5 is too small. I say this because, over a four-year term of this lease, there would also have been a strong expectation, way back in 1997, that it would in fact have been renewed for a further three years. Thus, in all probability, the purchaser would have had the benefit of something at least like seven years in the premises, maybe even eight or so.
Much has been talked about during this hearing concerning comparables. In my view, the comparables that have been put forward by Mr Lock, as it was his plain duty to do as an expert witness, do not provide me with much help at all. There are a number of reasons for this, but strongly among them is the fact that not one of them has the benefit of an A3 planning permission. Thus, one is not comparing like with like. I have a strong feeling that the benefit of an A3 planning permission would have increased the years’ purchase in the case of this property. But, even so, Mr Lock’s examples demonstrate a range of years’ purchase between 1.67 at its lowest, and 4.8 at its highest.
Mr Stephen Shaw, on behalf of the claimant, says that the mid-range between those is 3.2 years. I am sure that he is right. But, again, I ask myself, in relation to these comparables, and in relation to any projected sale of this property: what covenants in restraint of trade either were given, or might be given, in this case? What is plain in this case at least is that if the premises on Broad Street were sold, it seems to me to be perfectly apparent that the claimant would not be giving a covenant not to compete at different locations within the City of London, since it is quite apparent that it has seven or eight other premises in the City (I am not quite sure whether Chancery Lane is technically in the City or not, but, if it is, it is only just on the edge of it).
I also ask myself in the case of these other comparables: how was the purchase price apportioned at all as between the value of the lease, because in some cases there was a lease with 20 years to run. What was paid for fixtures, fittings and so on? And what was paid for goodwill? There is nothing there to help me with that. So I derive little or no help from these comparables. Doing the best that I can, and I realise it is a very imperfect best, my view is that the right multiplier is 2.75. I have come to the figure of 2.75 times £95,000 as giving £261,250. From that, of course, has to deducted the sum of £30,000, which is the value of the lease that the claimant was forced to take: that gives a total of £231,250. Now, to that, it seems to me, I have to add a figure for less compensation under the 1954 Act. The rateable value of the premises is £73,000; two years is provided by the Act, and thus that figure would be £146,000. But for how long do you defer it? Do you defer it for four years? Do you defer it for somewhat longer? In the end, I think probably you do have to defer it for somewhat longer. Again, doing a rough and ready calculation, I would discount that down to £83,000. If you add that on to the figure that I have given of £231,250, you get £314,350, which I have rounded up to the figure I have already given, which is £315,000.
I now come on to the question of relocation costs at Botolph Alley. My own view is, and I say this straightaway, that nothing should be added to the figure that I have given for those relocation costs. It seems to me that they are mutually exclusive forms of calculating the self-same loss, and there must be no double counting. First of all, if one were to include those relocation costs, one would have to include, as a counterbalancing charge, a figure for the goodwill that has been preserved by the move from Old Broad Street to Botolph Alley. Bearing in mind the high proportion of account customers who were serviced at Old Broad Street, that sum would be a significant sum that would have been preserved. But the amount of that, if I were to embark upon it, would be a pure guess, but would perhaps be helped by the evidence of Mr Cachioli as to the percentage that account customers contributed to the takings of the Old Broad Street premises. But whether each and every one of those account customers would be retained, now that the business had moved to Botolph Alley, or whether new ones would come in, is a matter of pure speculation. It is pure speculation that I decline to embark upon.
I think that these costs would have been incurred in 2006 anyway. Of course, there is, in this case, no calculation that might cover –– it has cost more by doing it early rather than late. Of course, it could not be done until 2006 anyway. But I think that if that had been done, and it might have been shown to be the case, such an extra sum might have been added. Redundancy payments are included in this. But it seems to me that there is every chance that those redundancy payments would have been incurred in 2006 anyway, and so all that has happened is that they have been incurred earlier.
The sale of Bow Lane has been put forward, and, of course, that may not have occurred at all had the claimant had the benefit of compensation under the 1954 Act. On the other hand, it was sold for what seems to me to have been the market price. There is a strong chance that it, or another premises, might have had to be sold in 2006 anyway to cover the very considerable costs, something in excess of £300,000, that have been spent on fitting out the premises at Botolph Alley.
Now, in all those circumstances, I do not think it right, for the reasons that I have given, to include anything at all in the way of damages in respect of relocation costs. While I would not say that they were not reasonably foreseeable, it seems to me either that they can come in as a substitute for the difference in value that we have already examined, or that they might come in if the difference in value had been reduced by this expenditure of relocation costs, that being a genuine attempt to mitigate loss. But there is no suggestion of that in this case.
Thus, for the reasons I have given, and subject always to any correction that counsel may make of my arithmetic, the award of damages in this case is £315,000.
