Negligence — Rent review — Whether surveyor negligent in failing to obtain sufficient evidence of comparable transactions before advising settlement
In 1986 the
plaintiff engaged Briant Chapman Long to negotiate rent reviews in respect of four
of its lock-up showroom-type properties. Through a partner, Mr Michael Long
FRICS, the defendant in fact gave advice or information about the appropriate
rent levels of five of the plaintiff’s properties as a result of which the
plaintiff alleged that it settled with the tenants on reviewed rents below the
proper market rents which it could have obtained if it had referred them to a
third-party arbitrator or expert. Damages were claimed for the plaintiff’s
loss.
accepted as standard in his profession. That meant obtaining information about
comparable transactions. The defendant’s efforts in searching for comparables
fell below the required professional standard of care and diligence. The
defendant should have analysed comparables on both a zoning and an overall
basis and had he done so he would have concluded that an arbitrator would have
awarded higher rents than those agreed. Damages were assessed at £34,240 based
on the loss of rents for the review period between the agreed rent and the open
market rents at the relevant review dates.
The following
case is referred to in this report.
Belvedere
Motors Ltd v King [1981] EGD 850; (1981) 260
EG 813, [1981] 2 EGLR 93
This is a
claim for damages by the plaintiff, CIL Securities Ltd, against the defendant,
Briant Champion Long.
Paul Morgan QC
(instructed by Denton Hall Burgin & Warrens) appeared for the plaintiff;
Henry de Lotbiniere (instructed by Berrymans) represented the defendant.
Giving
judgment, MR JOHN MOWBRAY QC said: CIL Securities Ltd belongs to a group
of companies, one of which, City Industrial Ltd, is well known as a shop fitter
and another owns and operates the Business Design Centre which it has made out
of the former Royal Agricultural Hall in Islington.
The group
holds all, or almost all, its investment properties — though not the Business
Design Centre, which is more intensively managed — through CIL Securities Ltd,
which I shall call ‘CIL’ for short. Six of CIL’s investment properties are:
(1) the showroom unit at Tower House, 141-149
Fonthill Road, near Finsbury Park Station in north London;
(2) showroom unit C at that address;
(3) another showroom, unit D, at that address;
(4) workshops and offices and storage on parts of
two floors there at a relevant time let to M&X Gowns Ltd, that I shall call
‘the M&X premises’;
(5) some other offices there let to the
Accountants Training Consortium, that I shall call ‘the ATC premises’; and
(6) the ground-floor showroom at 139 Fonthill
Road. I shall call that showroom, the ground floor alone, ‘No 139’.
CIL engaged
the West End chartered surveyors’ firm of Briant Chapman Long to act for CIL in
negotiating rent reviews for the first four of those properties. Mr Michael
Long [FRICS] was the partner involved. Whether or to what extent the firm was
truly involved in reviewing the rents of the other two properties is disputed.
Mr Long gave
CIL advice or information about the appropriate rent levels of the first five
properties and CIL says of the sixth that as a result of which it settled with
its different tenants on reviewed rents below the proper market rents which it
could have obtained if it had referred them to a third party, arbitrator or
independent expert, as it was entitled to do under the rent review clauses in
the leases.
The rent
review dates, with dates when Mr Long gave his main advice or information and
when agreement was reached with the tenants, the agreed rents, and what CIL
says was the proper market rent in each case, are as shown in the table below.
The finance
director of CIL at the relevant times was Mr Jack Morris, now chairman of the
group. Included in his responsibilities was overseeing the investment
properties, including rent reviews. He duly sent out trigger notices for
December 25 1986 reviews for units B, C and D. Mr Long’s surveyors’ firm was
engaged at the end of 1986. It is possible to fix the date by reference to a
letter of December 16 1986.
Mr Long
inspected and measured units B and D and reported to Mr Morris on January 25
1987. He said that:
|
Property |
Review date |
Main dates of |
Settlement date |
Rent agreed £pa |
Plaintiff’s £pa |
|
(1) Unit B |
25/12/86 |
15/1/87 |
30/10/87 |
14,750/15,000 |
20,250 |
|
|
28/9/87 |
|
|
|
|
|
(2) Unit C |
25/12/86 |
15/1/87 |
18/3/88 |
14,250 |
18,700 |
|
(3) Unit D |
25/12/86 |
15/1/87 |
17/11/87 |
13,500 |
19,900 |
|
|
13/11/87 |
|
|
|
|
|
(4) M&X premises |
24/6/87 |
21/8/87 |
22/6/88 |
37,500 |
52,000 |
|
|
13/6/88 |
|
|
|
|
|
|
4/7/88 |
|
|
|
|
|
(5) ATC premises |
29/9/87 |
early Aug 87 |
13/11/87 |
18,250 |
23,000 |
|
(6) N0 139 |
25/12/87 |
Before 22/1/88 |
23/2/88 |
15,000 |
28,800 |
I had no rental evidence in Fonthill Road upon which to base the
negotiations in respect of these rent reviews, though I would advise you that I
consider that on a zoning basis the appropriate figure to apply to these units
is £25.00 per sq ft.
The zoning basis
referred to there is a method of comparing the rent of one shop or similar
property with another. It applies to retail or quasi-retail accommodation and
is based on the assumption that the first 20ft of depth is the most valuable
area. That is called zone A. The next 20ft of depth is considered to be only
half the value of zone A and is termed zone B, and, likewise, the third 20ft of
depth is considered to be only half as valuable as zone B and is called zone C
and so on. Since the rental value applied to each zone is half the value of the
zone immediately in front of it you can calculate a floor area in terms of zone
A, usually abbreviated ‘ITZA’. So, the calculated adjusted area can be
multiplied by a single-value figure to give an annual rental value. For
instance, if premises have a uniform width of 20ft and a depth of 60ft the
method attributes the full value of 400 sq ft to the front 400 sq ft of the
building, only 200 sq ft to the next 400 sq ft in zone B and only 100 sq ft to
the last 400 sq ft in zone C. The measurement in terms of zone A is now 700 sq
ft, whereas the net usable floor space is 1,200 sq ft. It will be seen that the
zoning method attributes by far the greatest part of the rent to the front part
of the shop or showroom.
Mr Long concluded
his letter:
Applying
£25.00 per sq ft to Unit B with £2.00 per sq ft to the staff accommodation, it
produces an aggregate rental of £14,392, but, say, £14,400 per annum,
exclusive, which equates to £14.44 per sq ft on an overall basis. In respect of
Unit D the rental derived applying £2.00 per sq ft to the staff accommodation
and £4.00 per sq ft to the storeroom is £12,593, but, say, £12,600 per annum,
exclusive, which, again, on an overall basis, equates to £14.72. In commencing
negotiations, I would suggest quoting each unit on the basis of £18,500 per
annum exclusive. There is no doubt that the lessees will present a united front
during the negotiations, for they are fully aware of the situation with regard
to each other’s units. It is my impression that Mr Georgiou in Unit D is
possibly the best lessee to target in the event of pushing one review to third
party for I feel at the end of the day he will be realistic. I look forward to
receiving your instructions to proceed as suggested, and, needless to say, as
soon as I have carried out my inspection of Unit C I will report to you in
connection with that unit.
Mr Long wrote
then that he had no comparables in Fonthill Road. In fact his only local
information when he wrote his letter came from previous contacts with CIL. The
first two were when he had been an associate partner in another West End firm,
Lambert Smith. He had been engaged in 1983 in preparing a list, or estate
terrier, of all CIL’s properties, including others in the neighbourhood, and in
1984 in advising on the division of 141-149 Fonthill Road into units, forming
the units B, C and D and also units A and E, and later in an arbitration on a
review of the rent of no 139, which he managed to settle before it got to the
arbitrator. Then in 1985 or 1986, soon after his present partnership was
formed, Mr Long was engaged in a rent review for unit 2 in CIL’s property
nearby in Clifton House, Wells Terrace. In those ways, Mr Long had become
familiar with the showroom units at Tower House — 141-149 Fonthill Road. The
road is unique in north London. The part of it nearer to the station is almost
entirely ladies’ fashion trade showrooms with workshops and offices, also
mainly used by the garment industry. Rents, especially for the showrooms, are
far above those in surrounding streets. All this was well known to Mr Long from
his previous contacts. It is perhaps also significant that, in preparing for
the arbitration of the rent for no 139, Mr Long had treated units B and C in
Tower House as his comparables.
Mr Morris was
not content with the advice in Mr Long’s letter of December 16 1986. He wrote
back on January 19 1987 saying:
I think
before you make an advance to the tenants you should carry out a closer
appraisal of the comparable rents in Fonthill Road. I have heard of certain
units measuring a thousand sq ft which are let for £25,000 per annum. The
newest development in Fonthill Road which would be the best for a comparable is
129 to 131 [which Mr Long corrected to 113-115] which is known as Fonthill
House and I think you should look at this very carefully before forming an
opinion on rental levels for our units.
Mr Long asked
Mr Morris what were the comparables to which he referred and noted on the foot
of the letter the names of two possible sources of information given by Mr
Morris. They were Mr Kyros Kleantheous at 129-131 Fonthill Road and Chris
Spyros or Spyrou in the same road opposite Goodwin Street. On March 31 1987 Mr
Long wrote to Mr Morris saying,
I refer to
your letter of 19th January, since which I have been endeavouring to obtain
further information in respect of the properties to which you refer without any
success. I have at long last been able to arrange to inspect Unit C on
Wednesday of this week and at that time I shall also call in to try and see
Kyros Kleantheous and Chris Spyros. In the event that I do not obtain any
better evidence for these reviews I really feel that we should quote on
whatever basis we agreed and I will phone you later this week to arrange a
meeting in order that we can take the matter further.
Mr Spyros was
not available on the trip referred to, but Mr Long called on Mr Kleantheous on
his way to unit C and spoke to him face to face. Mr Kleantheous gave him some
information and he made very brief notes at the top of Mr Morris’ last letter
and wrote these out more fully at his office within a day or two. Both these
notes are before me. About Fonthill House, 113-115 Fonthill Road, the original
note says:
£450 pw for
double 2,000 sq ft 2 years ago.
The later,
fuller, note refers to Mr Kleantheous. It says:
He got £450
pw on Fonthill Ho. 2 yrs ago, but each unit was 2,000 sq ft.
Mr Long said
in evidence that when he wrote out the notes more fully he still remembered
what Mr Kleantheous had said and that he had said that there were two units,
each of 2,000 sq ft, not that there was one double unit of 2,000 sq ft. Mr Long
sighed when he first said that he understood that each unit was 2,000 sq ft. I
accept that evidence. I accept that it is the understanding that Mr Long
obtained from what Mr Kleantheous told him — whether it is what Mr Kleantheous
intended to convey I am not able to say on the evidence before me. In fact Mr
Long does not now dispute that the rent was £450 a week, making about £23,400 a
year, payable for each unit, but that there are two similar units, each
measuring 1,167 sq ft, so the overall yearly rate was £20.05 per sq ft, not
£11.70 per sq ft — the result of dividing the yearly rent by 2,000.
Mr Long did
not go into these units. I doubt whether he was under a duty to do so. I accept
his evidence that he looked at them from the outside. I find that a competent
surveyor who had the thought in mind would have realised in looking at the
front and flank wall, which can be seen from the street, that the units were
well under 2,000 sq ft each. Mr Long said in evidence that he had no reason to
doubt what Mr Kleantheous had told him and did not think to estimate the area
from the street in that way. He assumed the area was what he had been told.
Mr Kleantheous
also gave Mr Long his opinion about a proper rent for units B, C and D, with
which Mr Long was engaged. He said Mr Long should get £300 a week and that he
himself would quote £400 a week. Mr Long admits that when he wrote out his
fuller note he miscopied the £300 figure as £350. That was careless, but it
tended towards asking a higher rent, so did CIL no harm.
Mr Kleantheous
also told Mr Long when he called on him that Mr Spyros would shortly be letting
140 Fonthill Road — a three-storey building with showroom on the ground floor
and other accommodation over — at £400 a week. We know now that that was
correct, but Mr Long did not know the areas of the three floors and did not
attempt to analyse the rent or calculate figures per square foot. He had left a
card at Mr Spyros’ office, but heard no more from him. Mr Long said in
cross-examination that the information about no 140 confirmed his view about
the value of the three units, B, C and D.
On April 8
1987 Mr Long wrote again to Mr Morris. He began:
Further to my
letter of 31st March and our subsequent telephone conversation, I write to
confirm that I have quoted all three tenants on the basis of £19,500
per annum exclusive, which ranges from £19.58 per sq ft overall on Unit B to
£22.18 on Unit C.
Those last
figures are calculated on the overall basis. The corresponding figures on a
zoning basis had previously been calculated by Mr Long at £33.92, £37 and
£38.90. The oral evidence confirmed that Mr Long had indeed discussed the
asking figure of £19,500 with Mr Morris and that it was Mr Morris who suggested
it as the figure he wished to be put forward.
At the end of
the letter Mr Long asked Mr Morris to keep an eye on the developing situation
at no 140 and also on a new development at 123-125 Fonthill Road. Mr Long was
later informed that a double-ground-floor showroom of 1,438 sq ft net — that is
excluding WCS — at nos 123-125 had been let at £30,000 pa exclusive, which he
calculated came to £20.86 per sq ft overall.
CIL’s expert
chartered surveyor witness, Mr Nigel Nicholls [FRICS], and another of their
witnesses — also a chartered surveyor — Mr David Ramsey [FRICS], said that the
proper area to be considered was only 1,333 sq ft for the double showroom,
yielding a rent of £22.50 per sq ft overall, because under the rent review
clause in the lease the front part of the building was to be treated not as
street-front showroom space, which it is, but as loading bay, which it is not.
I do not accept this argument because, as I understand it, the £30,000 rent
agreed, or nearly agreed, when Mr Long inquired was payable under an original
lease as the original rent. The special provision in the rent review clause
made the lease a little more attractive to a tenant by reducing the rent on a
future review. During the hearing, however, two things emerged. The first was
that one of the units had been sublet for 20 years from July 24 1987 at £16,000
pa and was being occupied and used as a showroom with the shop window on the
street front. The other was that at some stage the front of the building had
indeed been two parking bays with the double units set back and steel shutter
doors for the bays, that there was no planning permission for the alteration
and that enforcement proceedings had been taken, planning permission sought and
refused and an appeal lodged. For CIL, it was argued that the parking bays were
there when the lease and sublease were granted. I do not accept that. When Mr
Long went to look at the building in the first half of 1987 there was a
hoarding in front of it. I deduce that the lease and sublease were granted
after the alterations had been made. It is true that in one of the planning
documents it is said by the landlord that the alteration was made by the
tenant, but it must have been by the tenant under an earlier lease, though that
may have been the same person.
For those
reasons I consider that the sublease can be taken at face value as a comparable
with the usable area of the unit sublet at 919 sq ft, as measured by Mr Long’s
expert witness, Mr Eric Shapiro [FRICS], right up to the shop front, yielding a
rate of £17.41 per sq ft overall or £31.19 per sq ft in terms of zone A. As
this subtenant is currently enjoying the whole area for that rent and using the
shop window and seems to have done so from July 24 1987 I think that these are
the more useful figures, but the comparable must be considered of qualified
weight.
Mr Long also
made inquiries by telephone among other estate agents, including Mr Eric Harvey
[FSVA] of Salter Rex, but without obtaining any news of comparable lettings of
ground-floor showrooms in Fonthill Road.
The tenants of
units B, C and D totally rejected the figure of £19,500 which Mr Long had put
forward. Correspondence with the agents advising the tenants followed. On July
20 1987 Folkard & Hayward made a counter-offer for the tenants of £14,000 a
year for unit B and £13,000 for unit D. On August 3 1987 Olympus Land Estates,
as agent for the tenant of unit C, wrote that it was not worth more than the
current rent and invited an application to the president of the Royal
Institution of Chartered Surveyors as provided for in the rent review clause.
Mr Long learned that Mr Neil Levy of CIL was in direct touch with Mr Lucas
Agrotis, tenant of unit B. By mid-September he had got to the stage where he
hoped to settle direct at £15,000 a year. He discussed the matter with Mr Long
and also consulted Mr Morris. Mr Morris suggested that Mr Levy should try to
settle direct at £15,000. Finally, Mr Long spoke to Mr Allen Wren [FRICS], a
partner in Folkard & Hayward, the tenant’s agent, and the rent for unit B
was agreed at £14,750 for two years, then £15,000 for the next two, ending with
the next review date.
This last
agreed rent was then used to obtain agreement on units C and D. On November 12
1987 Mr Levy agreed the new rent for unit D direct at £13,500. This was after
an allowance of £400 for some improvements by the tenant. Finally, in March
1988, just before it came before the arbitrator, a rent of £14,250 pa was agreed
for four years for unit C.
I will not go
through the correspondence in detail. Mr Paul Morgan QC, for CIL, points out
that neither Mr Wren nor the agent for the tenant of unit C ever mentioned any
comparables.
Though CIL
agreed some of the new rents direct, Mr Long was still writing to CIL in terms
which indicated that he was content to see his clients settle at the levels
agreed. The essence of CIL’s claim is that Mr Long was responsible for the new
rents being agreed at figures which were too low, instead of advising CIL to
take them to arbitration as it was entitled to do under the rent review clauses
in the leases. In view of the letters to which I have just referred, it could
not be suggested that CIL was acting otherwise than on Mr Long’s advice in
settling as it did instead of arbitrating. Indeed, Mr Long’s firm’s counsel
does not suggest to the contrary, but invites me to treat the case as if Mr
Long had settled all the rents with the tenants himself on CIL’s behalf.
Before I come
to the precise question whether Mr Long should have advised arbitration,
though, I need to consider just what Mr Long’s duty was and whether he
performed it at the earlier stages.
It was Mr
Long’s duty to adopt the procedure and practices accepted as standard in his
profession, as Kenneth Jones J said in Belvedere Motors Ltd v King
(1981) 260 EG 813 at p814. Mr Nicholls, the chartered surveyor who gave expert
evidence for CIL, and Mr Shapiro, the chartered surveyor expert witness called
for Mr Long’s firm, both said that in such circumstances as the present the
correct procedure was for Mr Long to obtain information about comparable
transactions if he could. Mr Long was a West End surveyor with little
experience of the levels of rents of showrooms in Fonthill Road, which both the
expert witnesses and Mr Long himself agree is unique. He was obviously under a
duty to inform himself of the current rental values. Finding convincing
comparables was the best way of doing that, also of preparing for negotiations
with the tenants or their advisers and, if necessary, any arbitration that
might come along., [1981] 2 EGLR 93
I find that Mr
Long’s efforts in searching for comparables fell below the required
professional standard of care and diligence. I take the view that he should
have investigated the double unit at 113-115 Fonthill further than he did,
especially as the area of 2,000 sq ft came from a landlord and not a
professional person and was a suspiciously round figure. Mr Kleantheous was
prepared to give information. If Mr Long had taken a full look at the front and
flank walls and gone back and asked just a few more questions I find that he
would have discovered that the £23,400 rent was being paid for each of two
units, each measuring 1,167 sq ft overall. He would also have discovered that
the lease was dated June 25 1985, not two years ago, as Mr Kleantheous had
said, though the rent might well have been agreed at the earlier time.
Whether
further inquiries would have revealed anything much about nos 123-125, I rather
doubt. I should have thought that the landlord would have been reluctant to
discuss the matter at all in view of the breach of planning law, though it may
well not have been his doing, and I very much doubt whether Mr Long acting for
a landlord would have got anything useful out of any tenant. In any case, Mr
Long analysed this comparable on the footing that the front part of it was not
available for showroom use.
I do not
consider that Mr Long was negligent in taking the information that 140 Fonthill
Road was being let at £400 a week — about £20,800 a year — as confirming his
view of value. That was to be paid for the whole three-storey building, against
his asking rent of
ground-floor showroom with other accommodation over raises difficulties of
comparison, because there is no sure way of allocating it among the floors. I
think that Mr Long got all that he could out of this comparable and I say no
more about any of these comparables.
None the less,
I have found that Mr Long was negligent in not making further inquiries about
nos 113-115, and I consider that his efforts generally fell below the
professional standard and that if he had been more diligent he would have
discovered evidence which would have tended to show to himself, to tenants he
negotiated with and, if necessary, an arbitrator that showroom rents in
Fonthill Road were higher than he thought. I make that finding notwithstanding
that I accept that it is probably difficult to obtain information in Fonthill
Road, for reasons which were given in evidence, and more difficult at the
relevant time than it was for the expert witnesses coming along some time
later. None the less, I consider it was more likely than not that if Mr Long
had persevered he would have discovered evidence pointing to higher levels of
rent.
That, though,
is not enough to enable CIL to recover damages from Mr Long’s firm. To do that
CIL needs to establish that the rents finally offered by the tenants were so
low that Mr Long should have gone to arbitration, or with unit C continued with
the arbitration, rather than accept. CIL says that the rents were at that low
level. I must turn to the terms of the market level of rents at the relevant
times to see whether that is correct. According to Mr Shapiro, the rents agreed
for the three units amount to the following per sq ft: for unit B, £14.83
overall, £25.94 ITZA; for unit C, £17.06 overall, £27.12 ITZA; for unit D,
£15.77 overall, £27.16 ITZA.
Mr Nicholls
made an analysis on the overall basis, which is a little different, but partly
because he assumed that Mr Long had been wrong to allow for a small area of
sloping floor at unit D, which it is now agreed was correct. Mr Nicholls has
made no analysis on a zoning basis. Mr Long had analysed the £15,000 agreed
rent for unit B for the second two years at £14.96 per sq ft overall or £25.24
per sq ft ITZA. Mr Nicholls gives it as his opinion that a market rent at the
valuation date, December 25 1986, was £22 per sq ft overall. Mr Shapiro says
£19 per sq ft overall or £13 per sq ft ITZA. Mr Nicholls was, perhaps
advisedly, not asked to give an opinion on any rents analysed in that way.
It will be
seen that, analysed on the overall basis, the rents achieved are well below the
rents which an arbitrator could be expected to fix even on Mr Shapiro’s view of
them. On that analysis, the rent of unit B was £4.17, or almost 22% short of
his £19 per sq ft market figure. It was also at the very bottom end of the
recent and contemporaneous comparables analysed in the same way as illustrated
in Mr Nicholls’ graph of comparables. But Mr Long was throughout the
negotiations analysing the rents on the zoning basis as well as overall. Mr
Nicholls said expressly that it was not wrong to take the zoning approach. Mr
Shapiro said that he preferred it for these purposes. He explained the
importance of the shop windows for these showrooms. The buyers are not, of
course, retailers themselves because the clothes are made on the premises and
sold wholesale from the showrooms. Mr Shapiro said, and I accept, that buyers
often come from small dress shops, walk along the street and buy small numbers
of the models they see in the windows. These, Mr Shapiro said, are often what
is called in the trade ‘cabbage’ — extra items squeezed out of the cloth
allowed for larger orders and sold for cash with advantages to the maker’s
cash-flow and perhaps less legitimate advantages as well. The importance of
passing trade was mentioned in the planning appeal document for nos 123-125.
This all tends to justify the use of the zoning method, attributing the
greatest rent to the front of the showroom, including, of course, the shop
window.
The district
valuer uses a slightly modified zoning method to ascertain rateable values for
the showrooms in Fonthill Road. These are ultimately based upon market rents,
but I accept that his figures are below the market. Mr Allen Wren, of Folkard
& Hayward, important chartered surveyors in the district, used the
traditional 20ft zoning method unprompted in his negotiations with Mr Long.
Against this it must be allowed that none of the arbitrators in any of the
arbitrations about which I have information has used the zoning method. None
the less, I am satisfied that a surveyor could not be held negligent for using
the zoning method in comparing the rents of showrooms B, C and D with those
obtained for others in the street.
Say, then,
that Mr Long had been more vigorous and persistent and obtained more
comparables than he did, he could not have been held negligent in comparing
them on the zoning basis with the tenants’ final offers so as to decide whether
to accept them or to carry them to arbitration. On that basis, the rents agreed
are approximately in line with those in the comparable transactions which he
might have discovered or clarified. On the zoning basis the rents agreed for
units C and D are within 10% of Mr Shapiro’s figure of £30 per sq ft. The rent
agreed for unit B is within 14% and against that must be set the £400 reduction
in the rent of unit D for improvements made by the tenant. Taken together they
are within the margin of error. Mr Shapiro said that a rent within 10% of
another was the same for the present purposes. I find that on the zoning basis
the rents achieved taken together were within any reasonable margin of error.
On the zoning
basis, each of the rents achieved was higher per square foot than those agreed
for the other showrooms at 92 Fonthill Road as at only six months before the
valuation date (£22.84); no 130 as at a year before (£22.22); and even unit B
was within 12% of those agreed for no 160 as at three months later (£29.49), in
what, it is common ground, was a rising market at that time. On the zoning
basis the rents achieved were near the middle of the results, agreed within a
year and a half before or in time to be available to Mr Long afterwards, as
illustrated in the graph appendix 5/1 to Mr Shapiro’s report.
In those
circumstances, judging on the zoning basis, as it would have been open to him
to do, a surveyor in Mr Long’s position might well have concluded that it was
better to accept the rents achieved than go to, or continue with, arbitration.
He might have got £40.23 per sq ft in terms of zone A, as had been agreed as at
12 months before the valuation date for the showroom at 100 Fonthill Road, but
he might have been left with the £22.84 subsequently achieved for the very
similar no 92. It would just not be worth the risk and cost in fees and
management time. But that is not what I have to decide. I have to decide as
best I can what would have happened if Mr Long or a competent surveyor in his
position had discovered further evidence, which I felt he should.
If Mr Long
analysed the comparables he found on both the zoning and the overall basis, he
would have discovered that on the overall basis the rents offered, especially
for unit B, were well below those agreed for the comparables, for instance, nos
113-115. Even though the offers were not so low on the zoning basis, a surveyor
in that position would be under a duty to explain the whole thing to his client
in simple terms. On balance, I find that after such an explanation CIL would
have gone to arbitration unless rents equal to at least £20 per sq ft overall
were offered. That finding gains support from Mr Shapiro’s evidence in
cross-examination about what advice a chartered surveyor should have given his
client if he had the full picture about Mr Long’s three comparables — nos
113-115, nos 123-125 and no 140 — and no comparables cited on the other side,
and from the fact that CIL was prepared to go to arbitration over unit C for a
much smaller prize and also over the M&X premises, as I shall be
mentioning.
It follows
from what I have said already that the arbitrator would have awarded higher
rents than those agreed, so Mr Long’s firm is liable, whether in contract or in
tort.
In considering
the measure of damages I think it is right not so much to say what an
arbitrator would have awarded but to make my own assessment of market rents as
at the valuation date, which was December 25 1986 for all these units. Based on
the evidence which I have heard. Mr Nicholls says the market rent was £22 per
sq ft overall: Mr Shapiro £19 per sq ft. Mr Nicholls took no account of the
premiums, some of them quite large on some of his comparables, but that is not
a reason for weighting his opinion over Mr Shapiro’s,
are to be treated as key money recoverable from the next tenant on leaving and
so should be disregarded. They seem to have been negotiations of which I have
information. Nor do I consider that Mr Nicholls’s opinion should be weighted
because of the view he took of the tenants’ repairing obligation in the leases
of units B, C and D. There are clauses in these leases about making
contributions to the repair of common parts. The effect of these clauses has
not been argued. I consider that it is sufficiently obscure that this point
would have no appreciable effect on the market.
I think that
Mr Nicholls put too high a rent on nos 123-125. Though its weight is reduced,
this is an important comparable because the showrooms are similar and the rent
there was agreed in the course of CIL’s negotiations, though as at a slightly
later time. I have dealt with this. Also Mr Nicholls has not taken account of
the zoning comparison. Mr Wren had used it in his opening letter and would
quite possibly have used it again in the arbitration, because it would have
helped his case by tending to reduce the rent awarded. Be that as it may, I
consider that in assessing the damages I should take it into account since it
is a permissible way of analysing the comparables, which produces a different
answer from an overall comparison. For this purpose it does not matter that if
Mr Nicholls had made a zoning comparison like Mr Shapiro he might have reached
a higher figure than £30 per sq ft. That may well be correct in the
circumstances, though I do not know how much higher and I doubt whether CIL is
entitled to rely on it seeing that Mr Nicholls was not asked to use the zoning
method and, that being clear, Mr Long’s counsel cannot be criticised for not
putting Mr Shapiro’s £30 figure to Mr Nicholls in cross-examination. I take
into account as an important factor the fact that a treatment of the
comparables on the zoning basis would lead to a lower market rent than overall
treatment as regards unit B and D, though, as I calculate it, slightly higher
for unit C. These are the conclusions I have made from Mr Shapiro’s rates and
the areas, overall and in terms of zone A, that he used.
Taking a view
of the evidence as a whole, and doing the best I can, I have formed a view that
the damages should be assessed on the footing that the market value of units B,
C and D is represented by £20 per sq ft overall, using the areas of net usable
floorspace derived from Mr Long and set out in para 4.2 of Mr Shapiro’s report.
They allow for the sloping area at unit D, which I find is correct, and indeed
that is agreed. They exclude ancillary accommodation, as do both experts. They
attribute no value to the sloping areas, but against that do not halve the
value of the rear portion at one of the units like Mr Nicholls. The damages
should be calculated on that basis. The proper rents were for unit B, £18,411
pa; for unit C, £15,485 pa; and for unit D, £15,276 pa, from which I deduct
£400 for the tenants’ improvements, leaving £14,876. I would ask the parties to
check that arithmetic and calculate the shortfall over the four years, as they
kindly agreed to do, after I have disposed of the other properties. From the
aggregate figure there will be deducted the cost of arbitration. It will be
recalled that Mr Long contemplated taking only one of the cases to arbitration
and I have evidence that that would have cost £500. I think, though, that I
should allow a little more than that, seeing that there were three separate
properties with three separate tenants, and I find that the deduction for the
cost of all the three similar cases going to arbitration together should be
£700.
So, I come to
the M&X premises. These are workrooms and offices on the first floor and on
the rear ground floor at Tower House, 141-149 Fonthill Road. The tenant had
sublet and wanted to surrender its lease so as to make its subtenants the
direct tenants of CIL. As a step in negotiating a surrender, CIL gave a trigger
notice on December 4 1986 for the rent review due under the headlease as at
June 24 1987. Mr Long was professionally engaged in the normal way in June or
July 1987. It will be seen that the events here overlap those I have recounted
in connection with units B, C and D.
Mr Long
measured the premises and found some comparable lettings. There was a
first-floor dress factory in Wells Terrace round the second corner off Fonthill
Road — rent agreed at £3.85 per sq ft in March 1986 — a floor in Fonthill Road
itself, agreed in April 1985 at £4.73 per sq ft and the fourth floor at 113-115
Fonthill Road, agreed in 1984 at £6.93 per sq ft. These are all overall
figures. A zoning analysis is not appropriate.
The original
rent quoted by CIL to M&X Gowns was £46,000 pa. It is not clear from where
that figure came, and nothing turns on it. In a letter to Mr Levy of August 21
1987 Mr Long calculated that to achieve a figure of £46,000 pa he would require
£7.50 per sq ft for the first-floor offices/showroom, £4 per sq ft for the
ground-floor workshop and £3 per sq ft for the first-floor workshop with an end
discount of 10% for quantum to give a rent of £46,335 pa. The usual size
of accommodation in Fonthill Road is comparatively small, but this particular
unit has an area of nearly 12,000 sq ft. There is a much smaller demand for
units of this size, so he made the 10% allowance to recognise the large size.
He also indicated a bottom-line figure of £35,000 pa which he derived from
figures of £6 per sq ft for the offices/showroom, £3.25 per sq ft for the
ground-floor workshop and £2.25 per sq ft for the first-floor workshop, with a
target figure of £40,000.
There followed
a letter of August 25 1987 to Mr Rolandos C Chrysanthou, who was acting on
behalf of the tenants, setting out Mr Long’s floor areas and an explanation of
how the landlord’s asking figure of £46,000 pa had been arrived at. Mr
Chrysanthou on October 19 1987 disputed the floor areas and made a revised
offer on behalf of his clients at £32,500 pa. Mr Long wrote to Mr Chrysanthou
on October 26 1987 setting out his explanation of the differences in their
areas. He also referred to some auction particulars at 97-103 Fonthill Road. In
particular, he referred to the ground-floor rear factory which comprised 2,076
sq ft let to a Mr Jamil for 12 years from 1987 at £18,000 pa, which equates to
£8.67 per sq ft, and he referred to the average rent for the first- and
second-floor factory accommodation at £3.36 per sq ft.
The
information from the auction particulars seems to have been new to Mr Long at
that stage. It seems not to have altered his view about values, even though it
equated to £8.67 per sq ft against the £7.50 per sq ft on which he justified
the quoted rent of £46,000.
On October 26
1987, Mr Long reported to Mr Levy on the tenants’ offer of £32,500 and there is
a handwritten note on Mr Levy’s retained copy referring to Tower House — that
is the ATC premises — on the second floor of the same building to the effect
that a rent review had been agreed as at September 25 1987 at £18,250 pa for
approximately 3,100 sq ft of offices, equating to £5.89 per sq ft. This was
information supplied by Mr Levy to Mr Long on November 6 1987. The rate of
£5.89 was marginally lower than the £7.50 on which Mr Levy had based his quoted
rent and so counterbalanced the £8.67 paid by Mr Jamil, though CIL says it
derived from some erroneous advice of Mr Long’s, but the point will emerge
later.
Mr Long met Mr
Chrysanthou early in January 1986 and, following that discussion, Mr Long wrote
to him suggesting £43,000 pa exclusive on the basis of £6 per sq ft for the
first-floor office/showrooms, £4 per sq ft for the ground-floor warehouse and
£3 per sq ft for the first-floor warehouse, less 10% for quantity. After
another letter Mr Chyrsanthou suggested that the matter should go to the
president of the Royal Institution of Chartered Surveyors and an application
was made on CIL’s behalf on April 22 1988. Mr Chrysanthou increased the
tenants’ offer to £35,000; in response, on June 13 1988, Mr Long wrote:
I have to
advise you that my clients do not consider this level of rent to be
representative of the current rental value of the premises. Indeed, my clients
endorse my view that the current market rental for these premises is properly
represented in the sum of £43,000 PAX. However, in an effort to compromise and
reach an amicable settlement with your clients I am instructed to advise you
that my clients would settle the review on the basis of a revised rental of
£40,000 PAX.
Soon
afterwards Mr Levy spoke to the tenant direct and indicated that CIL would
settle at £37,500. Mr Chrysanthou told Mr Levy this and Mr Levy asked him to
make a formal offer of that amount, which was done. On June 22 Mr Theo Mentzis
of M&X Gowns agreed this with Mr Morris of CIL. On July 4 1988 Mr Long
wrote to Mr Levy:
I was pleased
to learn that agreement had now been reached with Theo Mentzis at a revised
rental of £37,500 PAX. This is particularly favourable when viewed in the light
of my own valuation of the accommodation in August last year at £35,000 PAX.
It will be
recalled that what Mr Long had written about a rent of £35,000 a year in August
1987 was not so much that it was his valuation as that it was his ‘bottom line
level’. None the less, he had advised a target of £40,000 and the rent achieved
was halfway between.
As I have
said, CIL’s case is that a proper rent obtainable from the nominee of the
president of the RICS would have been not £37,500 but £52,000 a year. Mr Ramsey
has even said £58,000. Mr Nicholls, like Mr Long, breaks the premises down into
the first-floor office/showrooms which he values at £7 per sq ft against Mr
Levy’s bottom line of £6; a ground-floor workshop with ancillary showrooms,
which he values at £4 per sq ft against Mr Long’s £3.25 bottom line; and, the
first-floor workshop and storage, which he values at £4 per sq ft against Mr
Long’s £2.25. He does not make a separate 10% allowance for quantity, but makes
allowances in his individual rates for the fact that the M&X premises are
larger than his comparables.
Mr Nicholls
supports his valuation by reference to transactions in Fonthill Road that are
listed in para 6.36 of his report and the first in his para 6.37. The two
highest rents are for showrooms — admittedly on the first floor or in the
basement, unlike units B, C and D. Mr Nicholls’s report (para 6.02) refers to a
showroom at the M&X premises, but when he breaks the accommodation down he
refers only to the first floor as offices/showroom (para 6.3), like Mr Long,
who also referred to ‘ancillary’ showrooms on the ground floor. Mr Shapiro says
(para 7.18 of his report) that no part can really be used for showroom
purposes. In the circumstances, I accept that there is no proper showroom in
the M&X premises such as appears to be analysed in the two comparables I
have mentioned. I find that the use of these comparables has inflated Mr
Nicholls’ figures unduly. He also seems in his report to have relied upon his
comparable (xx) — another showroom — at £14 per sq ft, which would have a
similar effect even though he halved this rent. Mr Nicholls said that the
property was different from the comparables. Mr Shapiro said in his oral
evidence that there were no proper comparables for the M&X premises. They
are back premises approached through a yard which does not look at all inviting
in the photographs, and there were voids. Because he found no comparables which
he felt able to use, Mr Shapiro declined to put a value on the M&X
premises. Both the expert witnesses found them difficult to value. Mr Shapiro,
though he did not venture a value of his own, said you could not criticise Mr
Long’s agreement. It was an agreement reached at arm’s length between the parties
direct. The rent was agreed on review in 1990 at £42,000 pa after rents
generally had risen to a peak and fallen again.
My conclusion
here is that Mr Nicholls’ valuation is open to criticism, the M&X premises
are difficult to value and it is correspondingly difficult to criticise the
rent achieved. Mr Shapiro says it cannot be criticised. There is no such direct
evidence of negligent procedure as there is with units B, C and D. It follows
that the figure achieved cannot be called negligent unless Mr Shapiro was
wrong. I do not believe that he could be said to be wrong. He obviously gave
the matter careful consideration. I take the view that these being difficult
premises to value there is a very wide range of values which a chartered
surveyor could put upon them. Since Mr Shapiro shares Mr Long’s view to the
extent that he said: ‘His result could not be criticised’ I consider that it is
not possible to say that Mr Long was negligent.
I can dispose
quite shortly of the ATC premises. Mr Long was not engaged to conduct the
review. He merely gave some advice without remuneration at the beginning of it.
Mr Long accepts that he told Mr Levy that he should get £6 to £7 per sq ft for
the premises. Mr Levy said that Mr Long also said that he should be content
with £6. Mr Long denies saying this. I cannot see that anything turns on that
point. Mr Nicholls said that a surveyor should not give a spread of figures
such as £6 to £7, but should name a single figure as being his opinion, but I
did not understand him to say that it was negligent to give a spread. I am of
the clear view that it is not, assuming the figures are not misleading. Mr Long
did not seek out any comparables before expressing his opinion. Mr Nicholls
said that a surveyor should not give even a preliminary view without looking at
comparables. I need not go into that question. Mr Long accepts that he is
liable for any damage which flows if his advice was wrong. As to that, Mr
Nicholls says that an arbitrator would have fixed a market rent as at the
review date, September 29 1987, of £7.50 per sq ft, but Mr Shapiro agrees with
Mr Long’s advice. Mr Shapiro is a competent surveyor, a specialist in the
field, who formed that view after careful investigation and consideration and
he maintained it in cross-examination. Mr Long cannot be found to have given
negligent advice when Mr Shapiro agrees with it, even though Mr Nicholls does
not.
Finally, to no
139. Here it is common ground that the advice was seriously wrong, if it was
given. This is another ground-floor lock-up showroom. The valuation date was
December 25 1987. Mr Levy of CIL says that he consulted Mr Long about it by
telephone. That would have been shortly before January 22 1988 when Mr Levy
wrote to the tenant proposing a new rent of £16,500 pa. Mr Long has no
recollection of such a conversation. I can decide what was said only by
inference and the inherent probabilities. Mr Levy was inexperienced in property
management. The two of them were still working together over unit C, the rent
of which was not settled until March. I think it is more likely than not that
they discussed this further showroom. Mr Levy says they discussed it in
comparison with units B, C and D and Mr Long indicated that it was of lesser
quality and so the rent should be slightly less per sq ft. But events had moved
on in the year since the review date for the other showrooms. I accept that
they discussed no 139 and agreed that it was of a lesser quality. It would
follow that it would fetch a lesser rent if let at the same time, but I am not
able to find on the evidence that Mr Long intended to say, or said, that it
would fetch at the end of 1987 less than had been or would be obtained for
units B, C or D as at their valuation date a year before. Mr Long knew that
rents had risen quite strongly in the meantime and I do not consider that he
would have said this. Mr Levy said in his statement, which stood as evidence in
chief, only that:
Therefore,
the rent would be slightly less per sq ft. He would have given me an upper and
lower range per sq ft, as he had done for [the ATC premises].
My finding is
that the words I have just quoted are all a deduction which Mr Levy made from
what occurred and from the correspondence. His evidence in writing and also in
the witness box was full of the expression ‘would have’. As I say, Mr Levy was
inexperienced in property management. I accept his evidence that he did not
realise that rents had risen generally. I conclude that he jumped to the
conclusion that a proper rent per square foot was lower than had been achieved
for units B and D as at a year before and that that was not Mr Long’s advice.
The result is
that I award damages to be calculated as I have mentioned as regards the first
three properties. I shall also need to hear submissions or discuss the question
of interest, but I dismiss the other claims.
Damages and
85% of the costs awarded to the plaintiff.
