Currys Group plc v Martin

Negligence — Independent expert — Rent review determination — Retail premises — Whether legal test for professional negligence satisfied by showing negligent methodology even if valuation was one reasonably competent surveyor could properly have determined — Whether expert negligent in determining level of headline rent By a lease dated 26 July 1988 the claimant tenant held retail premises in a shopping centre in Shrewsbury for a 25-year term, subject to five-year rent reviews. In respect of the first review, the defendant was nominated by the president of the RICS to determine the rent, as an independent expert. In the course of his determination the parties informed the defendant that there was a dispute as to the correct interpretation of clause 6(2)(c) of the lease, with the landlord’s advisers contending that, on their interpretation, the rent at review was a headline rent, and the tenant’s advisers arguing that the defendant was to assess the rent payable in the open market on the basis that no inducements were offered. At the defendant’s request, an opinion of leading counsel was obtained, and he advised that the landlord’s interpretation of the rent review clause was correct. In April 1994 the defendant determined the rent in the sum of £107,000 pa and explained that he had accepted the advice of leading counsel and that he had found himself having to determine a rent that exceeded the level that might be described as the true or net effective rental value of the premises. The claimant alleged that the defendant was professionally negligent and should have determined the rent at only £80,000 pa, although it did not suggest that he was wrong to apply leading counsel’s opinion; damages of £795,000 were claimed. The claimant’s allegations related to: (1) a failure by the defendant to take into account the fact that the tenants of units 14 and 17 in the centre ceased trading and vacated the premises and that it was therefore wrong to place any, or undue, reliance on rental values derived from these transactions; (2) the use of a transaction involving unit 12 where the rent was based on turnover; (3) a failure to take into account the determination of another expert surveyor relating to unit 9; (4) a failure to have regard to another shopping centre or to have ascertained the asking rents at that centre; (5) the defendant’s assumptions as to the behaviour of the ‘willing lessor’ and ‘willing lessee’ in relation to a headline rent; and (6) a failure to make enquiries of and confer with other appointed experts. Held: The claim was dismissed and judgment given to the defendant. The defendant was not negligent. Following the rationale of the Court of Appeal, as expressed in Craneheath Securities v York Montague Ltd [1996] 1 EGLR 130 and Merivale Moore plc v Strutt & Parker [1999] 2 EGLR 171, there was no material difference in legal principle between a surveyor who undertakes to provide a valuation of property and one who undertakes to determine the rent under a rent review clause, in both cases the valuation exercise was an art and not a science; it was necessary for the claimant to show that the defendant’s determination was one that no reasonably competent surveyor could have reached. The approach of the defendant, that the notional landlord might have had an incentive to increase the inducements so as to keep the headline rents high, was one that would have been adopted by at least some reasonably competent surveyors. In relation to the claimant’s allegations: (1) the defendant was entitled to rely on the transactions relating to units 14 and 17 and to disregard the fact that after the rent review valuation date the tenants of those units ceased trading as there was no evidence that they were suspect or unreliable; (2) there was no reason to doubt that a competent valuer would have relied on unit 12, even though its value was less that the transactions involving units 14 and 17; (3) there were valid criticisms of the second expert’s determination of unit 9 and the defendant was entitled to disregard it; (4) the defendant was entitled to disregard the evidence relating to the second shopping centre and was not negligent in failing to inquire about the asking rents; (5) it could not be said that no reasonable valuer would have taken the view the defendant did in attributing to the notional landlord the actions of the actual landlord in seeking the headline rent; and (6) the defendant was not negligent in failing to confer with other experts. If the defendant had been found liable in negligence, the damages that would have been awarded were the additional rent of £27,000 pa from the rent review date of 13 January 1993 to the date of the award of 15 April 1994, plus £200,000, being the loss of value of the leasehold interest. The following cases are referred to in this report. Broadgate Square plc v Lehman Brothers Ltd [1994] 1 EGLR 143; [1994] 04 EG 135 City Offices plc v Bryanston Insurance Co Ltd [1993] 1 EGLR 126; [1993] 11 EG 129 Co-operative Wholesale Society Ltd v National Westminster Bank plc [1995] 1 EGLR 97; [1995] 01 EG 111, CA, affirming [1994] 1 EGLR 154; [1994] 14 EG 130 Craneheath Securities v York Montague Ltd [1996] 1 EGLR 130; [1996] 07 EG 141, CA Duke v Reliance Systems Ltd [1988] QB 108; [1987] 2 WLR 1225; [1987] 2 All ER 858, CA Evans (FR) (Leeds) Ltd v English Electric Co Ltd (1977) 36 P&CR 185; [1978] 1 EGLR 93; [1978] EGD 67; 245 EG 657 Legal & General Mortgage Services Ltd v HPC Professional Services [1997] PNLR 567 Lion Nathan Ltd v CC Bottlers Ltd [1996] 1 WLR 1438 Merivale Moore plc v Strutt & Parker [1999] 2 EGLR 171 Morelle Ltd v Wakeling [1955] 2 QB 379; [1955] 2 WLR 672; [1955] 1 All ER 708, CA Mount Banking Corporation Ltd v Brian Cooper & Co [1992] 2 EGLR 142; [1992] 35 EG 123 Scottish Amicable Life Assurance Society v Middleton [1994] 1 EGLR 150; [1994] 10 EG 109 Singer & Friedlander Ltd v John D Wood & Co [1977] 2 EGLR 84; [1977] EGD 569; (1977) 243 EG 212 & 295 Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254; [1996] 3 WLR 1051; [1996] 4 All ER 769, HL Zubaida v Hargreaves [1995] 1 EGLR 127; [1995] 09 EG 320, CA |page:166| This was the hearing of a claim by Currys Group plc against John Howard Sherwell Martin for damages for professional negligence. Michael Barnes QC and Jonathan Karas (instructed by Kennedys) appeared for the claimant; Paul Morgan QC and Edward Cole (instructed by Titmuss Sainer Dechert) represented the defendant. Giving his judgment, MR MICHAEL HARVEY QC said: Introduction The claimant, Currys Group plc, is the tenant of retail premises at units 18 and 19, Pride Hill Centre, Shrewsbury. It holds the premises under a 25-year lease, dated 26 July 1988, granted by the landlord, Royal Life Insurance Ltd. The initial rent was £72,000 pa. The lease provided for rent reviews every five years. At the first such rent review on 13 January 1993, the parties to the lease were unable to agree the new rent and the defendant, Mr John Martin frics, was nominated by the president of the Royal Institution of Chartered Surveyors to determine the rent, acting as an independent expert. He received legal advice that the new rent was to be fixed on the basis of it being a ‘headline rent’. On 15 April 1994 he determined it at £107,000 pa. The claimant contends that he was in breach of his contractual duty to exercise the reasonable skill and care of a competent chartered surveyor, ie that he was professionally negligent. It contends that the new rent should have been determined at only £80,000 pa, and seeks damages of £795,000. Both liability and damages are in issue. The premises The prime shopping area in Shrewsbury is the pedestrianised part of the street known as Pride Hill, which runs north-south. In 1987 a shopping centre, known as the Pride Hill Centre, was built to the west of Pride Hill. The ground slopes away at this location so the centre was built on three levels. The upper level adjoined Pride Hill. The middle level was one level down from Pride Hill, and the lower level adjoined Raven Meadows, a street to the west of Pride Hill. The three levels of the centre were connected by escalators and staircases. The total area of the centre was about 188,000 sq ft. Units 18 and 19, the premises with which this case is concerned, were on the middle level near the head of the escalators. They consisted of 3,304 sq ft of retail space on that level plus basement storage of 1,587 sq ft in the lower level. The shop frontage was about 45ft and the internal width of the premises varied from about 54ft at its maximum to almost 39ft at the rear. The depth of the shop was about 77ft. To the north of the Pride Hill Centre was another shopping centre, known as the Charles Darwin Centre. This had been built about two years later than the Pride Hill Centre. It was also on three levels with its upper level at the same level as Pride Hill. It was larger in size than the Pride Hill Centre; its total area was about 360,000 sq ft. The lease The lease, which was dated 26 July 1988, demised the premises to the claimant for a term of 25 years commencing on 13 January 1988. It was on a full repairing and insuring basis, and provided for the landlord’s cost of maintaining the centre to be recovered by way of a service charge. As I have mentioned, the initial rent was £72,000 pa. Clause 6 provided for upwards-only rent reviews at five-year intervals, the first such review being on 13 January 1993. Clause 6(1) stated that the revised rent was to be ‘an amount (hereinafter called ‘the revised rent’) which shall represent the open market value of the demised premises at each relevant date of review assessed in accordance with the following provisions of this clause’. The essential provisions were then set out in clause 6(2) entitled ‘valuation’, which read as follows: (2)(a) The open market value of the demised premises at each relevant date of review shall be such an amount as may be agreed between the Landlord and the Tenant or determined in accordance with sub-clause (3) of this Clause as representing the rental value in the open market of the demised premises at the relevant date of review for a term equal to unexpired residue of the term hereby granted or ten years if longer commencing on the relevant date of review as between a willing lessor and willing lessee with vacant possession without payment of a fine or premium and in all other respects on the terms and conditions of these presents (including the provision for the review of rent but excluding the amount of rent reserved). (b) The rental value in the open market of the demised premises at the relevant date of review shall be assessed on the suppositions (if not facts) that [and certain matters were then set out] but disregarding [and various matters relating to occupation, goodwill and improvements were then set out] (c) Provided that the open market value shall be such amount as would have been payable after the expiry of any rent-free period or concessionary rent period and after the giving of any contribution to the cost of fitting out and the giving of any other inducement which shall have been taken into account in assessing the rent value in the open market so that any discount in respect thereof which was allowed in assessing the rental value in the open market shall be disregarded in determining the open rental market value. Although the revised rent was described as being ‘an amount which shall represent the open market value of the demised premises at the relevant date of review’, the lease directed that this was to be assessed in accordance with the aforementioned provisions, one of which (clause 6(2)(c)) contained a formula relating to the assumptions to be made in respect of rent-free periods and other inducements. As I explain, both the meaning and effect of this clause was crucial to the proper determination of the revised rent. Clause 6(3) provided for the nomination of an expert if the landlord and tenant were unable to agree the revised rent. The clause provided: (3)(a) For the purposes of this sub-clause ‘Expert’ shall mean a chartered surveyor of not less than 10 years’ standing and a partner in a firm who shall be experienced in the letting of property of the nature of the demised premises and who shall be agreed upon by the parties hereto or in the event of failure so as to agree to be nominated by the President (or if he is unable to act the Vice-President) for the time being of the Royal Institution of Chartered Surveyors and not as an arbitrator but who shall be required to agree to: (i) afford the Landlord and the Tenant an opportunity to make written representations to him (ii) afford the Landlord and the Tenant an opportunity to comment on any written representations received by him (b) If the Landlord and Tenant shall not agree on the amount of the open market value as aforesaid by the date three months after the relevant date of review then at the election of the Landlord or the Tenant the amount aforesaid shall be decided by an Expert and the decision of such Expert shall be binding on both the Landlord and the Tenant… Rent review The claimant and the landlord were unable to agree the amount of the revised rent, and on 7 July 1993 the president of the RICS nominated the defendant to act as an independent expert. The defendant was a partner in Knight Frank & Rutley (and is currently the senior partner). On 19 July 1993 he wrote to the claimant and the landlord explaining his background and experience. He said: In this particular case, as you will both know, the lease requires that the Expert be a Chartered Surveyor of not less than ten years’ standing and a Partner in a firm who shall be experienced in the letting of property of the nature of the demised premises. I am a Fellow of the Royal Institution of Chartered Surveyors having been a chartered surveyor since 1971. I have been a partner in Knight Frank & Rutley since 1978 having been in charge of the Retail Department since 1975. I have been a Proprietary Partner since 1984 and I am currently the Senior Agency Partner in the commercial division of our UK practice. Whilst some of my time, inevitably, is taken up with management matters the vast majority of my time is spent on retail agency. I am concerned not merely with the letting and acquisition both of shops and shopping centres, but also with all that is involved in shopping centre development from inception to ultimate disposal throughout the United Kingdom. I also act for numerous clients — both landlords and tenants — in connection with rent review and lease renewal proceedings. Landlord clients of ours with properties in the vicinity of the subject premises include both Land Securities and the Reckitt and Colman Pension Fund. We value for the former and members of my team will be acting for the latter in connection with a rent review at 36/37 Pride Hill outside the centre. My firm also acts as valuers to Littlewoods who, as you will be aware, are represented in Shrewsbury. I trust that you will not hesitate to let me know if either of you have any further queries as to my suitability for dealing with this case. It goes without |page:167| saying that, of course, I would not have allowed my name to go forward had there been any doubt in my own mind. There were no objections to his acting. On 28 October 1993 Mr Peter Owen frics of Legat Owen, acting on behalf of the claimant, submitted extensive submissions to the defendant. On the same day Miss Julia Turner arics submitted her detailed submissions on behalf of the landlord. In accordance with the normal valuation practice for retail premises, both surveyors had applied the zoning method (whereby the shop floor is divided into zones of 20ft depth, the front zone being called zone A, the next being called zone B and valued at one half of the zone A rate, and so on). They were able to agree that the zoned areas of the premises were: Zone A 903 sq ft Zone B 1,020 sq ft Zone C 815 sq ft Zone D 566 sq ft 3,304 sq ft This was equivalent to 1,687.5 units expressed in terms of zone A (ITZA). They were also able to agree that the basement storage was 1,587sqft. However, there was no agreement on the rent to be applied to these areas. Miss Turner submitted that the appropriate zone A rent was £65per sq ft, giving a revised rent of £110,250 pa calculated as follows: Zone A 903 sq ft @ £65.00 = £58,695 Zone B 1,020 sq ft @ £32.50 = £33,150 Zone C 815 sq ft @ £16.25 = £13,244 Zone D 566 sq ft @ £8.13 = £4,602 Basement storage 1,587 @ £4.00 = £6,348 £116,039 less discount for size/shape 5% £5,802 £110,237 Say £110,250  Mr Owen submitted that the appropriate rent was considerably lower, such that there was no justification for any increase in the passing rent of £72,000 pa. By inference, he was submitting that if a zoning method were to be applied, the appropriate rent would be less than about £42 per sq ft ITZA. The defendant had already been informed that there was a dispute as to the correct interpretation of clause 6(2)(c), and it had been arranged that the parties would put forward legal arguments with their submissions. Miss Turner submitted that this clause required the expert to assess the headline rent that would be achieved in the open market (ie the rent that would be obtained after the expiry of any rent-free period, concessionary rent period and after the giving of any contribution to the cost of fitting-out and any other inducement). She supported this view with an opinion from Linklaters & Paines. Conversely, Mr Owen submitted that clause 6(2)(c) required the expert to assess the rent payable in the open market on the basis that no inducements were offered, and he supported this view with an opinion from Park Nelson Thompson Quarrel. On 17 November 1993 Miss Turner submitted counter-submissions that dealt with general valuation matters and appended a further opinion from Linklaters & Paines. Similarly, on 18 November 1993 Mr Owen submitted counter-submissions that also considered general valuation matters and appended a further opinion from Park Nelson Thompson Quarrel. On 19 November 1993 the defendant informed the parties that he was unable to proceed further until the point of law had been resolved. He invited them jointly to nominate counsel and to provide him with agreed instructions. The parties put forward the name of David Neuberger QC (now Neuberger J) and in due course instructions were prepared and submitted. On 8 March 1994 Mr Neuberger submitted a written opinion. After quoting the relevant provisions of the lease he summarised the rival contentions as follows: 4. The Landlord’s contention is that the effect of clause 6(2)(c) is that the open market value is to be what is sometimes called a ‘headline rent’. This contention is supported by two memoranda from Mr H Lewis of Linklaters & Paines (appendix VII of the Landlord’s Submission and appendix III to the Landlord’s Counter-Submission). The effect of this contention is that if Mr Martin concluded that the subject premises would in fact be let in the open market as at the review date at £X per square foot ITZA, albeit with a rent-free period of 18 months, of which six months would be attributable to the need of the hypothetical tenant to fit out, and 12 months would be pure inducement, he should nonetheless fix the open market value at £X, and should not discount the £X because of the absence of any such allowance or inducement so far as the actual tenant is concerned. 5. On the other hand, the contention on behalf of the Tenant is that, in the example just given, the open market value is significantly less than £X, because that rental level should be adjusted downwards to take into account the fact that, on the hypothetical letting to be valued for rent review purposes, the rent is payable from the very beginning of the hypothetical lease, and the hypothetical tenant (like the actual tenant) is not accorded a rent-free period for any purpose. The Tenant’s legal case on this point is contained in Appendix 18 to its Submission and Appendix 2 to its Counter-Submission. He then analysed four first instance decisions in which similar (but not identically worded) clauses had been considered. The four cases were: City Offices plc v Bryanston Insurance Co Ltd [1993] 11 EG 129*, a decision of Aldous J; Co-operative Wholesale Society Ltd v National Westminster Bank plc† (24 November 1993, Judge Michael Rich QC); Broadgate Square plc v Lehman Brothers Ltd‡ (29November 1993), a decision of Harman J; and Scottish Amicable Life Assurance Society v Middleton§ (8 February 1994), a decision of Arden J. *Editor’s note: Also reported at [1993] 1 EGLR 126 †Editor’s note: Also reported at [1994] 1 EGLR 154; [1994] 14 EG 130 ‡Editor’s note: Also reported at [1994] 1 EGLR 143; [1994] 04 EG 135 §Editor’s note: Also reported at [1994] 1 EGLR 150; [1994] 10 EG 109 He referred to the fact that leave to appeal had been granted to the unsuccessful tenants in the Co-operative Wholesale Society and Broadgate Square cases. His conclusion, in para 26, was as follows: In these circumstances I have reached the conclusion that the Landlord’s argument on the legal point raised in this rent review determination is correct, and that the reviewed rent must be fixed on the basis of it being a ‘headline rent’ in light of clause 6(2)(c) of the lease. It may be scant comfort to the tenant if I add that it may be (I put it no higher than that) that the decision of the Court of Appeal in Co-Operative and Broadgate and, if it goes to appeal Scottish Amicable would point to a different conclusion. However, on the basis of the approach to construction as laid down in the four High Court cases to which I have referred I have reached the conclusion that the landlord’s construction of the effect of clause 6(2)(c) of the Lease is correct. On 8 March 1994 the defendant sent the claimant and the landlord a copy of Mr Neuberger’s opinion and advised them that he proposed to inspect the premises on 16 March, which he duly did in the company of his partner Christopher Evans-Tipping, a rent review expert. On 10March Mr Owen wrote to the defendant acknowledging the receipt of the opinion and expressing the tenant’s surprise and disappointment at its conclusions. He submitted that the onerous nature of a headline rent clause would cause the hypothetical tenant to discount his bid, but since this is an argument that has not been pursued in the litigation, I need say no more about it. Mr Owen wrote again on 28 March enclosing an article from Estates Gazette commenting upon the four cases to which Mr Neuberger had referred. On 15 April 1994 the defendant made and announced his determination in the sum of £107,000 pa. He explained in his letter to Miss Turner and Mr Owen: I have already provided the parties with copies of the advice provided to me by Mr David Neuberger QC as expressed in his opinion of 8 March 1994. I refer the parties to paragraph 26 therein which, in clear terms, advises me that the Landlord’s construction of the effect of clause 6(2)(c) of the lease is correct and that the reviewed rent falls to be fixed on the basis of it being a ‘headline’ rent. In my judgment, having regard to market circumstances as at the date of review, |page:168| I find myself left with no alternative other than to determine a rent which will exceed and will substantially exceed the level which might be described as the true or net effective rental value of the premises in the open market. This conclusion will naturally be regarded as inequitable by Mr Owen’s clients and that is a view with which I have considered sympathy. In these circumstances I have reflected very carefully upon the further arguments set out by Mr Owen in his letters to me of 10 and 28 March. Ultimately, however, I have not felt able to accept Mr Owen’s approach. Having carefully considered the advice and representations before me, I have with reluctance concluded that the hypothetical landlord would, as at the date of review, have been willing to offer inducements sufficient to obtain a rent reflecting £65 Zone A and £4 per square feet in the basement. I would probably not have accepted this contention if the rent review date had been somewhat later than is the case. I consider further that the appropriate end allowance is 7.5% as follows: Ground floor 1,687.5 sq ft ITZA @ £65.00 £109,687 Basement 1,587 sq ft @ £4.00 £6,348 £116,035 Less for quantum/shape £8,703 £107,332 But, say, £107,000 per annum. I do hereby determine and decide that the revised rent as defined was £107,000. Basis of the defendant’s determination The basis of the defendant’s determination is to be gleaned from essentially four sources, namely the brief handwritten notes that he made following his inspection, the terms of his determination letter of 15 April 1994, his witness statement dated 3 December 1997 and the evidence that he gave orally in cross-examination and re-examination. The defendant realised that the meaning of clause 6(2)(c) would have a profound impact upon the approach that he was required to adopt. Having obtained Mr Neuberger’s opinion, he correctly appreciated that he was obliged to follow it even though it was apparent that the clause could work harshly against the claimant. There is no suggestion by the claimant that he was in any way wrong to apply MrNeuberger’s interpretation. One of the issues that he considered he had to address was the extent to which, in his judgment, the hypothetical landlord would have been willing at the date of the review to offer inducements in order to secure a letting at a given level of rent. I do not understand there to be any suggestion that he was wrong in identifying this issue. Indeed, MrHasprey frics, the expert valuer called on behalf of the claimant, agreed that this was a relevant question. In answering this question the defendant felt that it was appropriate to differentiate between a landlord of an individual property (eg one shop in a High Street) and a landlord of numerous units in an enclosed centre. In the former case he considered that, in a declining market, there would be little purpose in an individual landlord incurring costs (eg by offering inducements) in an attempt to achieve a high headline rent. In the latter case he considered that a landlord of an enclosed centre would, in a declining market, go to considerable lengths and be willing to incur considerable costs in order to preserve the illusion that rental values in his scheme were holding up relative to the market as a whole. The reason, in the defendant’s view, was that any rental evidence within the centre that tended to show either growth or decline in rental values at the centre would immediately impact upon the perceived rental (and therefore capital) value of the scheme as a whole. Hence, such a landlord had every incentive to keep headline rents high. The defendant recognised that in such a situation the rent would effectively be fixed by the landlord, while the negotiations would centre not on the rent but on the manner and extent of the inducements that the tenant would require to persuade him to pay that rent. The defendant had evidence of three comparable transactions at the middle level of the Pride Hill Centre, each taking place within about 3.5 months of the review date. In brief they were: 1. An open market letting of unit 17 to Eventest Ltd, trading as the Computer Game Shop and WG Amott at a headline rent of £65 per sq ft ITZA (£45,000 pa). The date of the lease was 29 September 1992. The term of the lease was 20 years with five-year rent reviews. The inducements granted were a four-month rent-free period and a capital contribution of £50,000 (together equivalent to a rent-free period of about 1 year 5.5 months). This shop was almost adjoining the subject premises. 2. An open market letting of unit 14 to Home 2000 Ltd, trading as Home, and Dalebase Ltd at a headline rent of £64 per sq ft ITZA (£56,500 pa). The date of the lease was 29 September 1992. The term of the lease was 20 years with five-year rent reviews. The inducements granted were a six-month rent-free period and a capital contribution of £72,500 (together equivalent to a rent-free period of about 1 year 9.5 months). This shop was only a short distance from the subject property. 3. An open market letting of unit 12 to Limelight Management Ltd, trading as Cotswold Chocolate Company, at a headline rent of £68 per sq ft ITZA (£37,500 pa) on the basis of the ‘full’ rent described in the lease, or £54 per sq ft ITZA (£30,000 pa) on the basis of a base rent payable under the lease ignoring any additional turnover rent. The lease was granted in April 1993 and was for a period of 20 years subject to five-year rent reviews. The inducements granted were a five-month rent-free period and a capital contribution of £37,500 (together equivalent to a rent-free period of between 1 year 5 months and 1 year 8 months). He made his determination 15 months after the review date. At the time he did so he was aware that the lessees of units 14 and 17 had subsequently ceased trading and vacated (in about October 1993). He considered that this information had to be disregarded because it would not have been known by the hypothetical landlord or tenant at the date of the review, 13 January 1993. There is an issue about whether or not unit 12 was still trading at the date of his inspection of the premises on 16 March 1994. In making his determination he placed most reliance on the transactions relating to units 14 and 17 and attached less weight to the transaction at unit 12. He had received information about other transactions elsewhere but did not consider that they were of significance other than as giving general guidance. He concluded that the actual landlord, Royal Life Insurance, had shown that it wanted £65 per sq ft as a headline rent on the middle level, and would have been prepared, in January 1993, to pay substantial inducements to achieve this. He then considered whether or not the hypothetical landlord would have adopted a similar strategy in relation to the notional letting of the premises in January 1993. He concluded that the notional landlord would have done so. He explained in his cross-examination that his judgment was that the notional landlord would have let at a zone A rent figure the same as the one achieved, ie £65 per sq ft. He said he could see no reason why the notional landlord should not have acted in the same way as the actual landlord. The defendant recognised that he was determining a rent that substantially exceeded the true, or net effective, rental value of the premises. This was a consequence of the headline rent clause in the lease. He told me that he felt that the result was inequitable and that he had the utmost sympathy for the claimant. He said that he was concerned that if he failed to follow Mr Neuberger’s opinion he would be acting incorrectly, and that he felt that he had no room for manoeuvre. Co-operative Wholesale Society Ltd v National Westminster Bank plc [1995] 1 EGLR 97* *Editor’s note: Also reported at [1995] 01 EG 111 On 17 November 1994 the Court of Appeal heard appeals in four cases involving alleged headline rent clauses, and gave guidance on their interpretation. Hoffmann LJ said at p99L: On the other hand, a clause which deems the market rent to be the headline rent obtainable after a rent-free period granted simply to disguise the fall in the rental value of the property is not in accordance with the basic purpose of a rent review clause. It enables a landlord to obtain an increase in rent without any rise in property values or fall in the value of money, but simply by reason of changes |page:169| in the way the market is choosing to structure the financial packaging of the deal. It therefore seems to me that, in the absence of unambiguous language, a court should not be ready to construe a rent review clause as having this effect. On the other hand, it would not be right to treat it as simply preposterous. Simon Brown LJ said at p101H: An appropriate starting point in one’s approach to these clauses seems to me the Vice Chancellor’s judgment in British Gas Corporation v Universities Superannuation Scheme Ltd [1986] 1 WLR 398 at p401: ‘There is really no dispute that the general purpose of a provision for rent review is to enable the landlord to obtain from time to time the market rental which the premises would command if let on the same terms on the open market at the review date. The purpose is to reflect the changes in the value of money and real increases in the value of the property during a long term.’ The avowed object of the clauses now at issue is, however, according to the landlords, precisely the opposite. It is (save as to the clauses’ undisputed effect of precluding a discount upon the open market rent to reflect allowances commonly made for a new tenant’s start-up costs — thus counteracting the decision in 99 Bishopsgate) to ‘insulate’ (Mr Jonathan Gaunt QC’s term) the landlord against any fall in the value of property or, as Mr Kim Lewison QC put it, to ‘… run counter to the market…’. Clearly, it is possible to draft a rent review clause to produce that effect, but it is hardly a provision one would expect to find, distorting, as so radically it does, the very open market rent for which on review one is ultimately searching. I recognise, of course, that one’s search is for an open market rent as defined by the lease and accordingly that certain specified unreal hypotheses are introduced. But the artificiality of these is ordinarily within relatively narrow limits; it does not strike at the very heart of a true open market valuation. I cannot, for example, accept the landlord’s argument that the clause (as they construe it) is little different to a provision for upward-only review. That seems to me an altogether different concept: a simple rejection of the ‘true’ open market value, if it happens to be less than is already payable. How do the landlords seek to justify the present clauses (construed as widely as they would have them construed)? As I understand it, essentially thus: true, they say, we would now have to induce the hypothetical tenant taking a fresh tenancy at the time of review not merely with concessions to reflect his start-up costs but also with an inducement to take the lease; the actual tenant, however, should not have the benefit of that. But why not? There is no certainty that the tenant himself will have enjoyed any such inducement at the commencement of his lease. But even if he has, so what? Whether that was intended for all time to exhaust the effect of such inducements is surely the question to be answered on these appeals. The very fact that such further inducements would be necessary to obtain a fresh letting at the date of review, to my mind, necessarily demonstrates that the rental value is lower than the headline rent and it is the former which the tenant ought properly to be paying. To my mind, therefore, only the most unambiguous of such clauses could properly be found to bear the landlord’s construction. I mention this case for three reasons. First, the remarks of Hoffmann and Simon Brown LJJ confirm the defendant’s own views, as a practising surveyor, about the inherent unfairness of headline rent clauses. Second, the case shows that effect must be given to such a clause where, on its true construction, the headline rent has to be fixed. Third, it is not relevant for me to consider whether Mr Neuberger would or would not have interpreted clause 6(2)(c) as he did if the Court of Appeal decision had been available at the time of his opinion. The present case is to be decided on the basis that the defendant acted correctly in following Mr Neuberger’s advice. I express no view on the true meaning of this clause recognising that it may be the subject of further argument at future rent reviews. Legal test for professional negligence There is an issue between the parties as to what must be shown to establish professional negligence. The defendant submits that the claimant must show that the rent determined by him, namely £107,000pa, was a rent that no reasonably competent surveyor could in the circumstances have determined. The claimant submits that it is sufficient to show that the defendant was negligent in his methodology in a way that was adverse to it, and that damages are recoverable even though the rent determined was one that a reasonably competent surveyor could properly have determined. Mr Paul Morgan QC, on behalf of the defendant, relies on four authorities, two being at first instance and two in the Court of Appeal. The first in chronological order is Mount Banking Corporation Ltd v Brian Cooper & Co [1992] 2 EGLR 142*, a decision of Mr RM Stewart QC, in which the plaintiff lenders had claimed damages for an allegedly negligent overvaluation by the defendant surveyor. In giving judgment for the defendant Mr Stewart said at p145D: If the valuation that has been reached cannot be impeached as a total, then, however erroneous the method or its application by which the valuation has been reached, no loss has been sustained because, within the Bolam principle, it was a proper valuation. I do, however, accept that if and where errors are demonstrated either in the approach or in the application of the approach, then any judge should look carefully at whether that valuation is, despite those errors, nonetheless an acceptable value within the Bolam principle. *Editor’s note: Also reported at [1992] 35 EG 123 This was followed by Craneheath Securities v York Montague Ltd [1996] 1 EGLR 130†, a case also involving a claim by the plaintiff lenders for an allegedly negligent overvaluation by surveyors. The lenders’ appeal was dismissed by the Court of Appeal. Balcombe LJ said at p132B: I am satisfied that there was no material before the judge which could have enabled him to make a finding that Craneheath had discharged the initial burden of proving that the valuation of £5.25m was wrong. I reject Mr Lloyd’s submission, that if we were satisfied that there were a sufficient number of errors in the way in which Mr Crabtree has carried out his valuation we should in the circumstances of this case infer that his final result was wrong. Valuation is not a science, it is an art, and the instinctive ‘feel’ for the market of an experienced valuer is not something which can be ignored. Since Craneheath did not establish that the figure of £5.25m was wrong, then I agree with Mr Stow that Craneheath’s action must necessarily fail. It would not be enough for Craneheath to show that there have been errors at some stages of the valuation, unless they can also show that the final valuation was wrong. If authority be needed for so self-evident a proposition it can be found in Mount Banking Corporation Ltd v Brian Cooper & Co… †Editor’s note: Also reported [1996] 07 EG 141 The third case is Legal & General Mortgage Services Ltd v HPC Professional Services [1997] PNLR 567, a decision of Judge LanganQC, sitting as a deputy judge of the High Court. This was a further case involving a claim by lenders against surveyors for an alleged overvaluation. Judge Langan said at p572F: I turn now to the positions advanced by counsel. Counsel for the plaintiff submits that his client may succeed by establishing either that £400,000, the figure at which the defendant valued Wits End, was above and outside the bracket within which any competent valuer using reasonable care and skill could have valued the property (I call this the ‘result route’), or that by failing to exercise such care and skill he valued the property at an incorrect figure albeit a figure within the appropriate bracket (I call this the ‘method route’). After referring to and expressing agreement with the decision in Mount Banking, he continued at p573G: Counsel for the plaintiff submitted that Mount Banking cannot stand with two recently reported authorities, the decisions of the Privy Council in Lion Nathan Ltd v CC Bottlers Ltd [1996] 1 WLR 1438, and of the House of Lords in South Australia Asset Management Corp v York Montague Ltd [1996] 3 WLR 87. Both cases were concerned with the quantification of damages and not with liability. Lion Nathan was concerned with breach of a warranty given on the sale of a business, and I feel quite unable to transpose the passages cited by counsel — see pages 1445B-1446A and pages 1446H-1447A — analogically to the very different area of professional negligence. South Australia was indeed concerned with valuer’s negligence, but I do not read the passage relied upon — see page 102B-F — as inconsistent with Mr Stewart’s proposition that recoverable loss is not sustained where a valuation arrived at cannot (I quote again Mr Stewart’s words) ‘be impeached as a total’. At p575E he concluded: |page:170| If, as I have found, the true value of Wits End on April 28, 1989 was £350,000, then the bracket is £300,000 to £400,000 and the defendants’ valuation fell within the bracket… As the defendant provided a valuation which was within, although only just within, the range within which careful and competent valuers might differ, negligence has not been made out and the action must accordingly be dismissed. The fourth case is Merivale Moore plc v Strutt & Parker*, a decision of the Court of Appeal dated 22 April 1999. The plaintiff, who was a developer, sued the defendant surveyor in respect of an allegedly negligent appraisal and for failing to give any qualification about the yield figure that it had used. A finding of liability in respect of the former allegation was reversed on appeal, but the latter allegation was upheld. In the course of his judgment Buxton LJ considered the correct approach to a complaint of negligence against a valuer. *Editor’s note: Reported at [1999] 2 EGLR 171 He said [at p176G of EGLR]: It has frequently been observed that the process of valuation does not admit of precise conclusions, and thus that the conclusions of competent and careful valuers may differ, perhaps by a substantial margin, without one of them being negligent: see for instance the often quoted judgment of Watkins J in Singer & Friedlander Ltd v John D Wood & Co [1977] 2 EGLR 84 at p85G; and the House of Lords in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 at p221F-G. That has led to the courts adopting a particular approach to claims of negligence on the part of valuers. In the general run of actions for negligence against professional men: ‘it is not enough to show that another expert would have given a different answer… the issue… is whether [the defendant] has acted in accordance with practices which are regarded as acceptable by a respectable body of opinion in his profession: Zubaida v Hargreaves [1995] 1 EGLR 127 at p128A-B per Hoffmann LJ, citing the very well-known passage in Bolam v Friern Hospital Management Committee [1957] 1 WLR 582 at p587.’ However, where the complaint relates to the figures included in a valuation, there is an earlier stage that the court must be taken through before the need arises to address considerations of the Bolam type. Because the valuer cannot be faulted in any event for achieving a result that does not admit of some degree of error, the first question is whether the valuation, as a figure, falls outside the range permitted to a non-negligent valuer. As Watkins J put it in Singer & Friedlander at p86A: ‘There is, as I have said, a permissible margin of error, the ‘bracket’ as I have called it. What can properly be expected from a competent valuer using reasonable skill and care is that his valuation falls within this bracket.’ A valuation that falls outside the permissible margin of error calls into question the valuer’s competence and the care with which he carried out his task: ibid. But not only if, but only if, the valuation falls outside that permissible margin does that inquiry arise. That is what I take to have been the view of Balcombe LJ, with whom the remainder of the members of this court agreed, in Craneheath Securities v York Montague Ltd [1996] 1 EGLR 130 at p132C, when he said: ‘It would not be enough for Craneheath to show that there have been errors at some stages of the valuation unless they can also show that the final valuation was wrong.’ As it was put by Judge Langan QC in Legal & General Mortgage Services Ltd v HPC Professional Services [1997] PNLR 567 at p574F, in an analysis that I found helpful, once it is shown that the valuation falls outside the ‘bracket’: ‘the plaintiff will by that stage have discharged an evidential burden. It will be for the defendant to show that, notwithstanding that the valuation is outside the range within which careful and competent valuers may reasonably differ, he nonetheless exercised the degree of care and skill which was appropriate in the circumstances.’ Mr Michael Barnes QC, on behalf of the claimant, relied principally on the observations of Lord Hoffmann in Lion Nathan Ltd v CC Bottlers Ltd [1996] 1 WLR 1438 (PC). This was a claim for damages for breach of a warranty contained in an agreement for the sale of shares. The relevant terms of the warranty were that a forecast of future revenue had been ‘calculated on a proper basis’, which the Privy Council held meant that reasonable care had been taken. Lord Hoffmann said at p1445C: Whether a forecast was negligent or not depends upon whether reasonable care was taken in preparing it. It is impossible to say in the abstract that a forecast of a given figure ‘would not have been negligent’. It might have been or it might not have been, depending upon how it was done. Assume, for example, that the vendor had forecast $1.25m and that the limits of foreseeable deviation would have been regarded as $50,000 either way. Assume that the forecast was unexceptionable in every respect but one; there had been a careless double counting of sales which, if noticed, would have reduced the estimate by $25,000. To that extent, the estimate has not been made with reasonable care. If on account of some compensating deviation the outcome is $1.25m or more, the purchaser will have suffered no loss and the vendor will incur no liability. But if the outcome is less than $1.25m, their Lordships think that the purchaser is entitled to say that if the estimate had been made with reasonable care, the figure put forward by the vendor as the mean and upon which he relied in fixing the price, would have been $25,000 lower. To this extent, he has suffered loss by reason of the breach of warranty. It is nothing to the point that the outcome is still within what would have been predicted as the limits of foreseeable deviation. His complaint is that the whole range of possible outcomes would have been stated as $25,000 lower. The purchaser has accepted the risk of any deviation attributable to factors which are unforeseeable, unknown or incalculable at the time of the forecast. He has accepted the risk of such deviation whether its true extent would have been foreseeable at the time of the forecast or not. But he does not accept the risk of any deviation which is attributable to lack of proper care in the preparation of the forecast. The only tolerable forecast is one which, on its facts, was prepared with reasonable care. At p1446B he said: In a case in which it is possible to isolate the negligent error from the rest of the forecast, as in the example of the single $25,000 mistake, it would be reasonable to say that in other respects the forecast would have been the same. All that is necessary is to adjust the figure by $25,000. But in this case, the breach of warranty went to the whole methodology of the forecast. It is not possible to say that in any particular respect, this vendor would, if he had taken proper care, have produced elements of the same forecast. It is therefore necessary to approach the question objectively and ask what a reasonable forecast would have been. This in turn involves choosing from within the range of forecasts, all of which would have been reasonable interpretations of the information then available to the vendor. Where within this range should the court choose? Mr Barnes submitted that Merivale Moore was decided per incuriam. I cannot accept this for two reasons. First, it is inconceivable that Buxton LJ overlooked the remarks of Lord Hoffmann in Lion Nathan. He expressly referred, at p13 of the transcript, to the analysis by Judge Langan QC in Legal & General, remarking that he had found it helpful and quoting the passage from p574 of that judgment. Judge Langan’s analysis had considered the passages I have cited above, as is apparent from the top of p574. Second, a decision of the Privy Council is only of persuasive value, and is not binding on the Court of Appeal. Consequently, the per incuriam rule can have no application: see, for example, Morelle Ltd v Wakeling [1955] 2 QB 379 at p406 and Duke v Reliance Systems Ltd [1988] QB 108 at p113D. In my judgment, I must follow the rationale of the Court of Appeal as expressed in both Craneheath and Merivale Moore. In the present case the defendant had undertaken to exercise reasonable skill and care in determining the reviewed rent. I can see no material difference in legal principle between a surveyor who undertakes to provide a valuation of property and one who undertakes to determine the rent under a rent review clause. In both cases the valuation exercise is an art and not a science: Singer & Friedlander v John D Wood & Co (1977) 243 EG 212* at p213. This is particularly so in the present case where more than one approach to the determination of a headline rent might be appropriate. I therefore conclude that it is necessary for the claimant to show that the defendant’s determination in the sum of £107,000 was one that no reasonably competent surveyor could have reached. *Editor’s note: Also reported at [1977] 2 EGLR 84 In any event, this is not a case, like the example given by Lord Hoffmann, of an arithmetical (or similar) error that can be isolated from the judgmental decision in the valuation, and corrected without affecting or impacting upon those judgmental decisions. On the contrary, the allegations made against the defendant are ones that, if established, would be relevant to his judgmental decisions. |page:171| Expert evidence on liability Both parties called expert evidence on liability. The claimants called Mr Brian Hasprey frics, a partner of Cheetham & Mortimer, of Manchester. He said in his report that he would have determined the rent at £78,500 pa, based on a headline rent of £50 per sq ft ITZA. He subsequently revised this to £80,000 pa after it had been pointed out that his figure of £50 per sq ft ITZA had been derived from the rent determined by Mr Green for unit 9 (WH Smiths — being larger premises than the subject premises), and that therefore there was no justification for any further discount for size. His calculation was: Ground floor ITZA 1,687.50 @ £50 £84,375 Basement storage 1,587.00 @ £3 £4,761 £89,136 Less 10% allowance for shape and poor visibility of the unit £8,913 £80,223 Say £80,000 pa. He said that a 10% margin for error would be permissible. Thus, the maximum non-negligent rent was, in his opinion, £88,000 pa. The defendant called Mr John Buckingham frics, a partner of Jones Lang LaSalle. His valuation was identical to the defendant’s, namely £107,000, based on a headline rent of £65 per sq ft ITZA. He approved of the approach adopted by the defendant in determining a headline rent, and by inference applied such an approach in his own valuation. He said at paras 134-137 of his report: Mr Martin concluded that the hypothetical landlord would, at the valuation date, have been willing to offer the hypothetical tenant inducements sufficient to obtain a headline rent reflecting £65 zone A, less any adjustments and he determined that the revised rent should be £107,000 per annum exclusive, effective as from 13th January 1993. Mr Martin was clearly uncomfortable awarding this level of rent, but in my view, this was entirely justified on the available evidence and under the constraints of clause 6(2)(c) of the lease. The landlords had endeavoured to sustain the value of the Pride Hill Shopping Centre during the early days of the recession by paying substantial inducements to tenants to take units. The recession bit deeper and lasted for considerably longer than anyone had anticipated. A year later (ie at the beginning of 1994), the landlords may well have concluded that it was a futile exercise to artificially maintain rental and capital values during a prolonged recession, due to the high inducements that were necessary and increasing failure rates, and would have adopted a different strategy. Timing is therefore, vital in this case. At the review date, the landlord was prepared to invest heavily to create headline rent evidence; at some stage in the future that may not have been the case. Although the landlords invested in securing tenants on the [middle level], it could also be assumed that they would have done likewise if a unit or units had fallen vacant on the [upper level]. I consider that Mr Martin acted with the reasonable skill and care of a competent chartered surveyor acting as an expert in assessing the rent of the subject premises. Thus, the approach of the defendant and Mr Buckingham involved recognising that the notional landlord of premises such as a shopping centre might have an incentive to increase the inducements so as to keep the headline rents high. It therefore seems to me that the first question that I must ask myself is whether this approach was one that at least some reasonably competent surveyors would have adopted. The question is important because in the case of an ordinary open market rent review there is essentially only one variable, namely the level of rent, whereas when determining the headline rent there are two potential variables, namely the level of inducement and the level of headline rent. It is self-evident that the greater the inducement the greater the headline rent that the tenant will be prepared to pay. The evidence was that rent-free periods and capital inducement were often analysed by spreading the benefit over a period of five, or sometimes 10, years. Thus, applying a five-year period, if the true or net effective rent were, say, £60,000 pa, this would be approximately equivalent to a rent-free period of two years followed by three years at the headline rent of £100,000 pa. In my judgment, the approach adopted by the defendant and MrBuckingham was one that would have been adopted by at least some reasonably competent surveyors. I say this for the following reasons: 1. This was the approach in fact adopted by the defendant, and such an approach has the approval of Mr Buckingham. 2. There is no allegation in the pleadings that the approach is wrong. As I explain below, the criticisms are directed to other matters. 3. Although Mr Hasprey’s approach involved making an assumption about the level of inducement (he assumed a two-year rent-free period), I did not understand his evidence to be that the approach of the defendant and Mr Buckingham was one that no reasonably competent surveyor could have applied. 4. There is little or no professional guidance on the approach to be adopted in determining a headline rent. Mr Buckingham told me that in April 1994 headline rent clauses were extremely rare. He did not think that he had come across one in a shopping centre before. 5. It is common ground that the notional landlord must be assumed to be the owner of the Pride Hill Centre, and not simply the owner of units 18/19: see Hill & Redman’s Law of Landlord and Tenant para 3684, reading: On the other hand, certain facts have to be attributed to these hypothetical entities. For example, where the hypothetical lease is of premises which are a part of a larger building and the lease contains obligations on the landlord in relation to the remainder of the building, such as to keep it in structural repair, it is a necessary attribute of the hypothetical lessor that he owns or has an interest in the remainder of the building such that he can fulfil his obligations. Clause 6(2)(a) of the lease defined the hypothetical lease as being ‘in all other respects on the terms and conditions of these presents’, and clauses in the lease referred to and defined the Pride Hill Centre (clause 1(2)(f) and schedule 1) and imposed obligations on the landlord in relation to the maintenance of the centre (clause 4 and schedule 4). 6. The behaviour of a typical landlord in relation to inducements is described at para 3930 of Hill & Redman. The text reads: Some landlords may be anxious to keep the level of their headline rent as high as possible and thus will be willing to offer substantial inducements to achieve their aim. The footnote adds: A landlord who owns a number of tenanted properties in an area such as a shopping mall may be concerned to keep up the ostensible level of rents. To achieve this he may be willing to offer a substantial inducement in return for a high headline rent. His reasoning may be that the high rent will assist him in rent reviews or new lettings of other properties. It may also assist in maintaining the capital value of his reversion. 7. Mr Buckingham envisaged that the level of inducement would have been of the order of two years rent-free. This is in fact the same as Mr Hasprey was assuming. An alternative approach, which was discussed during the hearing, might be to take a typical or average level of inducement and apply that to the hypothetical lease. But such an approach, while having the advantage of introducing an element of certainty into the rent review exercise, would be imposing a qualification that was not specified in the wording of clause 6(2)(c). The parties could have imposed such a qualification, but they have not done so. It may be relevant to note that the equivalent clause in the lease for unit 17 did contain a qualification. The relevant clause (in which I have underlined the qualification) read as follows: Provided that the rack rental market value shall be such amount as would have been payable after the expiry of any rent-free period or concessionary rent period and after the giving of any contribution to the cost of fitting out and the giving of any other inducement which shall have been taken into account in assessing the rental value in the open market (in each case only so far as referable to fitting out or the ordinary practice of the market but not further or otherwise) so that any discount in respect thereof which was allowed in assessing the rental value in the open market shall be disregarded in determining the rack rental market value. |page:172| The claimant has made various allegations against the defendant. Since I have held that the essential question is whether the revised rent of £107,000 pa was a rent that no reasonably competent surveyor could have determined, and this is the figure reached by Mr Buckingham, it is appropriate that I should consider whether any of these allegations undermine Mr Buckingham’s evidence. In so doing I shall also consider Mr Hasprey’s evidence in respect of these allegations. Some of the allegations only relate to the defendant’s own methodology (for example the allegations that he failed to make inquiries of Mr Green — Mr Buckingham was aware of Mr Green’s determination in respect of unit 9 and took it into account in reaching his valuation). I shall consider these separately later. The allegations relate to the following matters: 1. Units 14 and 17; 2. Unit 12; 3. Mr Green’s determination at unit 9; 4. The Charles Darwin Centre; and 5. Willing lessor and willing lessee. Units 14 and 17 Mr Buckingham expressed the view that a competent valuer or independent expert, faced with the task of carrying out a rental valuation of the subject premises at the valuation date, would have relied heavily, if not exclusively, on the open market lettings of units 12, 14 and 17. He explained that they were the most relevant comparables in time and locational terms having been let three months either side of the rent review date and being located alongside the subject premises on the same level. As I have already mentioned, the defendant placed most reliance on the transactions at units 14 and 17. It is also significant that both parties to the rent review invited the defendant to have particular regard to these comparables. Mr Owen, on behalf of the claimant, said: In essence I accept that one can approach the valuation by considering the zone A’s created by the induced lettings on the [middle level] and attempt to use these zone A’s in isolation to support a valuation of the subject premises. Miss Turner said: In order to establish the rental value of the subject property I have relied to a great extent upon three open market lettings of units situated on the same [middle level] within the centre. This is clearly the most relevant evidence for the review… Mr Owen, in his counter-submissions, referred to the aforementioned statement of Miss Turner and said: This is a point of agreement between the parties. The transactions which have occurred on the same level of the scheme are obviously very relevant, fundamentally because of their location… Therefore, I see the references to numbers 2 and 4 Pride Hill, Shrewsbury, or any reference to other parts of the centre, as irrelevant in the context of showing a specific level of value for the subject premises. Although Mr Owen’s submissions were made before MrNeuberger’s opinion had been obtained, they were never withdrawn or qualified. At the time of the determination, April 1994, it was known that the tenants of units 14 and 17 had ceased trading and had vacated the premises. The claimant alleges that this information should have been taken into account in assessing the value of these transactions as comparables. Mr Hasprey expressed the opinion that it was common practice to consider such post-review evidence. As I have mentioned, the defendant believed that this information had to be disregarded because it would not have been known by the hypothetical landlord or tenant at the date of the review, 13 January 1993. He told me that he discussed the point with his colleagues. Mr Buckingham agreed with the defendant. He considered that the information about the failure of these two tenants was therefore not relevant. In my judgment, it was correct to disregard this information. It would not have been known to the hypothetical landlord or tenant on 13January 1993 that the tenants of units 14 and 17 would, some months later, vacate their premises. The law is accurately stated in para 3710 of Hill & Redman: Where property is to be valued as at a certain date it is necessary to consider what evidence can be adduced to establish the value as at that date. There are three basic principles to be applied. (a) Regard may be had to (i) any events which have occurred or circumstances which existed at any time prior to and up to the valuation date, and (ii) any expectation of future events which exists at the valuation date. Of course, the events, circumstances or expectations must be relevant to the value of the property. They must also be matters which would be known in the hypothetical market at the valuation date, since if they would not be known they could not affect the hypothetical negotiations. Prior events and circumstances which are relevant may include transactions on comparable properties and general events which affect value such as changes of government. Expectations of future events often affect property values at a given date. Expected macro-economic events such as changes in interest rates or in property taxation can have this effect. Anticipated local events, for instance the opening of a new road, can have an effect on property in the locality. (b) The second principle is that generally events which occur after the valuation date must be left out of account. The hypothetical willing lessor and willing lessee cannot know of these events when they agree a rent. In so far as these events were foreseeable at the valuation date their anticipated effect may be relevant under the first principle. (c) The third principle is that transactions concerning comparable properties may be taken into account even though the transaction takes place after the valuation date. The reason is that such transactions can clearly have a probative value in determining the rent which would be obtained for the premises being valued on the valuation date. If a transaction which is otherwise an excellent comparable occurs a few days after the valuation date it would not be rational to exclude it as having no probative value in relation to the likely rent of the premises to be valued on the valuation date. This third principle might be thought to be an exception to the second principle. In a sense it is, but it must be emphasised that the post-valuation date comparable is admissible as evidence of value not because it would be known to the hypothetical lessor and lessee on the valuation date but because it is an indication of the rental value on the valuation date irrespective of such knowledge. Since a transaction after the valuation date is admissible it must follow that events which occur between the valuation date and the date of the comparable transaction may be considered where they affect the rent for the comparable. Again, such events are not considered because they would be known to the hypothetical parties but because the weight to be attached to the post-valuation date comparable may be affected by the events. It is sometimes considered that a post-valuation date comparable is of less evidential weight than a pre-valuation date comparable because the former type of comparable would not be known to and so could not affect the minds or the negotiations of the parties to the hypothetical lease. Mr Barnes QC sought to argue that the subsequent failure of the two tenants threw light on the weight to be accorded to the two transactions. I accept that there may be situations where subsequent events lead to the inference that a transaction was not what it appears to have been. If, for example, the tenant of the comparable transaction was, after the review date, convicted of using the premises for supplying drugs, this might (but not necessarily would) lead to the inference that he had agreed to pay a high rent because he intended to use the premises for an unlawful purpose and in breach of the user covenants in the lease. The relevance would lie in the inference that the transaction was not a normal retail letting at open market value, or that the tenant had been a ‘special purchaser’. In the present case the information about the failure of the two tenants leads to no similar inference about the transactions. All that was known was that the tenants had subsequently ceased business and vacated their premises and that (in one case) administrative receivers had been appointed. None of these facts lead to any inference that the original lettings had not been normal transactions at open market values. I therefore cannot accept Mr Barnes’ submission. There is a further point. This is a professional negligence case. I am satisfied that many valuers in the position of the defendant would have applied the principles set out in the passages cited in Hill & Redman. If they had done so they would not, in my judgment, have been negligent. I do not accept that the hypothetical reasonably competent surveyor would have considered it necessary to seek legal advice on this matter. The claimant also alleges that it was wrong to place any, or any undue, reliance on the rental values derived from these transactions. |page:173| MrHasprey said that the comparable evidence from a transaction should not be regarded as sound until the tenant had paid rent for a period of 1.5 to 2 years after any inducements had lapsed. Since the tenants of units 14 and 17 had received inducements equivalent to 1year 5.5 months and 1 year 9.5 months respectively, this would mean waiting about 3.5 years. He said that he himself would not have placed any weight on these two tenants until they had made satisfactory rental payments for the period mentioned. He was not able to justify this attitude by reference to textbooks or articles, and I cannot accept this reason for rejecting, or doubting the value of, the comparable evidence afforded by the transactions at units 14 and 17. More importantly, there was evidence concerning the stature or covenant strength of the two tenants. Mr Barnes had opened the case by referring to ‘capital bandits’ — a term that I understood to refer to small tenants who were happy to enter into leases that offered generous capital inducements in the knowledge that if they traded successfully all well and good, and that if they did not they would walk away from the premises and/or go into liquidation having received and spent the landlord’s inducements. In his evidence Mr Hasprey said that he would describe Eventest Ltd, trading as the Computer Game Shop (the tenant of unit 17), and Home 2000 Ltd (the tenant of unit 14) as capital bandits, although I am not sure that he was using the term in precisely the same sense as Mr Barnes. I had the impression that Mr Hasprey regarded any small tenant who received a substantial capital inducement as at least a potential ‘capital bandit’. It is therefore safer to put this pejorative term on one side and concentrate on the facts. In relation to unit 17 the hypothetical surveyor would have known or inferred the following facts: (a) that the tenant was Eventest trading as the Computer Game Shop; (b) that Mr Amott was a guarantor. If the lease had been available it would have shown that the guarantor’s liability remained for five years, but that if the lease were disclaimed or determined by forfeiture or re‑entry within that period, the landlord could require the guarantor to enter into a new lease on the same terms for the residue of the term (ie for up to 20 years); (c) that Royal Insurance Co had been prepared to make a substantial capital contribution; (d) that the tenant had been represented by London agents, Pittaway Watney. (e) He might also have known that the tenant had taken premises elsewhere. Mr Hasprey said that he was aware that they had six or seven shops spread around the country. In relation to unit 14 the hypothetical surveyor would have known, or inferred, the following facts: (a) that the tenant was Home 2000 Ltd, trading as Home; (b) that there was a guarantor, Dalebase Ltd. If the lease had been available it would have shown that the guarantor’s liability remained for five years; (c) that Royal Insurance Co had been prepared to make a substantial capital contribution; (d) that the tenant was represented by London agents, Reid Rose Gregory. (e) He might also have known that the tenant, or its associated companies, had been trading elsewhere. Mr Hasprey said that Home had a dozen or so shops across the country. Mr Buckingham said that he was aware that his firm had acted in lettings to Home 2000. He thought that Home 2000 had purchased the long established Carpenters’ business and as a result was quite a substantial company. Although both tenants were, in Mr Buckingham’s words, relatively untried covenants, I can see no justification for doubting MrBuckingham’s evidence that a competent valuer would have relied heavily, if not exclusively, on these two transactions (and that for unit 12 — which I shall consider below). The evidence does not show that these two transactions are suspect or unreliable as comparables. Unit 12 Unit 12 was let to Cotswold Chocolate Company in April 1993 with a rent-free period of five months and a capital contribution of £37,500. Thereafter the rent was to be determined in accordance with the turnover of the tenant’s business subject to a minimum rent of £30,000pa. The position was summarised in the claimant’s and landlord’s submissions of 28 October 1993 as follows: Rent — the full rent of the property was agreed at £37,500 per annum. The tenant pays a base rent of £30,000 per annum plus the amount by which 10% of gross turnover less the VAT exceeds the base rent. Five months rent-free period. Thus, if the turnover was £375,000 the rent would be £37,500 pa. If the turnover was increased to say £400,000, the rent would be £40,000pa. However, if the turnover was only £250,000, the rent would still be the minimum figure of £30,000 pa. Rents of £30,000 pa and £37,500 pa equated to rents of £54 and £68 respectively ITZA. A copy of the lease was made available during the trial and it confirmed the summary that had been made in the submissions. In these circumstances, there was clearly not a fixed headline rent. The headline rent payable at the end of the five-month rent-free period would depend upon the turnover actually achieved, and this might increase or decrease in subsequent years. If there was evidence of the landlord’s and tenant’s expectations as to turnover at the date of the lease this might enable a valuer to assess the most likely average rent payable during say, the period from the end of the rent-free period until the first rent review. This would be the figure of interest when using the letting as a comparable. Unfortunately, there is no evidence of the parties’ expectations at the date of the lease. The only indication is the letter of 26 October 1993 from a director of Cotswold Chocolate Company saying that it was unlikely that a turnover figure of £300,000 would be reached in the immediately foreseeable future. I think that it would be wrong to infer that this was necessarily the expectation of either the tenant or the landlord at the date of the lease. The most that can safely be said is that the headline rent was at least £54 per sq ft ITZA and might be as high as £68 or conceivably even higher. The transaction is therefore not as helpful, in my opinion, as the transactions from units 14 and 17. This was the view formed by the defendant, who said that the letting, while interesting, was of less assistance due to the fact that the rent was linked to turnover. However, it does show the determination of the actual landlord to keep the headline rent at about the £65 level. The lease, by defining the full rent as meaning £37,500 (which is equivalent to £68 per sq ft ITZA), had been, I believe, drawn up to give every appearance that headline rents were being maintained in the Pride Hill Centre. It is also noteworthy that the retail PROMIS report on Shrewsbury (produced by Property Market Analysis, an independent property research organisation) stated, in April 1993, that: Inside the Pride Hill Centre, the Cotswold Chocolate Co has recently taken a unit at a reported £65 per square foot zone A. Top rents within the centre are around £80 — £85 per square foot zone A dropping to around £65 per square foot zone A in the middle floor. There is currently only one vacant unit (excluding kiosks) in the centre. The defendant said that he visited unit 12 during his inspection on 16 March 1994. However, his handwritten notes record ‘now closed’. This discrepancy was not fully explained during the evidence, but I think that it is likely that there were indications on 16 March 1994, and the hypothetical valuer, to disregard this post-review date event. Alternatively it would not have been negligent to have done so. As to covenant strength the hypothetical valuer would have known, or inferred, the following facts in relation to unit 12: (a) that the tenant was Cotswold Chocolate Company. More precisely, if the lease had been available it would have shown that the tenant was Cotswold Chocolate Company (South) Ltd. (b) If the lease had been available it would have shown that there were two guarantors, namely Limelight Management Ltd and Eagle Groups Ltd. The guarantee by the first named guarantor was unlimited in time. In particular, if the lease had been disclaimed or determined by forfeiture or re-entry the first named guarantor could be required to enter into a new lease on the same terms for the residue of the term. At |page:174| the landlord’s option the second-named guarantor could be required, for a two-year period, to provide a similar guarantee to that of the first guarantor. (c) that Royal Insurance Co had been prepared to make a sizeable capital contribution. (d) He might also known that Cotswold Chocolate Company (or perhaps associated companies trading under that name) had taken leases of other premises at various places. I received some evidence to this effect from Mr Buckingham, and the letter of 26 October 1993 described the company as national retailers of quality chocolates. I can see no reason for doubting Mr Buckingham’s evidence that a competent valuer would have relied on this transaction. However, as I have explained, its value was less than that provided by the transactions at units 14 and 17. Mr Green’s determination Mr Green was appointed by the president of the RICS to determine the reviewed rent at unit 9. These premises were on the upper level and the tenant was WH Smith. The premises were larger than units 18/19, having a retail floor area of about 5,100 sq ft and 2,567 sq ft of storage. The initial rent had been £105,000 pa. On 16 March 1994 Mr Green determined the reviewed rent at £126,000 based on a zone A rent of £65. He had also been advised that under the similar terms of the rent review clause the revised rent had to be a headline rent. Mr Hasprey attaches considerable importance to this determination. He acknowledged that he used it as a very important stepping stone in his argument. He considers that the correct zone A headline rent for units 18/19 is £50 per sq ft, which reflects a discount of about 25% from the WH Smith zone A rent of £65. There is no dispute between the parties that the zone A rent for units 18/19, which was on the middle level, would be expected to be lower than the zone A rent for unit 9, which was on the upper level. Mr Buckingham, unlike the defendant, was well aware of MrGreen’s determination at the time he prepared his expert’s report and made his own valuation, taking a headline zone A rent of £65 per sq ft. He said that evidence from the upper level, while providing useful background information, was not directly comparable, and it is clear that he effectively disregarded it. The question that I have to address is whether this was a permissible view. The defendant and Mr Buckingham made various criticisms of both Mr Green’s determination about Mr Hasprey’s use of the determination. These can be summarised as follows: 1. Mr Green’s determination was not an actual transaction or a settlement reached between the parties to the unit 9 lease. It is common ground that the recognised hierarchy, in descending order of evidential value, is: (1) open market transactions; (2) rent reviews agreed between the parties; and (3) rent reviews determined by an expert or arbitrator. Note the remarks of Hoffmann LJ in Zubaida v Hargreaves [1995] 1 EGLR 127* at p128. 2. His determination did not relate to the middle level. *Editor’s note: Also reported at [1995] 09 EG 320 3. His determination was not based on any comparable transactions from the upper level. I refer to Mr Oates’ determination in respect of unit 3 below. 4. In considering the transactions at units 14 and 17 he incorrectly took account of information that would not have been available at the review date (25 December 1992). He said: Turning to the two lettings that Miss Turner referred to me, in the Pride Hill Centre itself, namely Unit 17 let to the Computer Game Shop, and Unit 14 let to Home both of these equates as at 24th June 1992 to £64 zone A, ignoring any capital payments made to either of the tenants or rent-free periods. However, as at the date of determining the rent on the subject premises, I am of course aware that neither of these tenants are still in occupation, both having ceased trading after the review date on the subject premises but before I have adjudicated. I am aware that in the case of Home they did take a number of units elsewhere in the country within shopping centres and received capital allowances and although their covenant strength was untested, they were proving to be acceptable to a number of developers throughout the country and their subsequent demise may not have been merely due to the failure of one particular location but is more likely to have been due to the fact that they overextended their operation. However, with the benefit of hindsight which I have, I consider that the figure of £65 zone A was higher than the true headline rent applicable to these units bearing in mind that both tenants are no longer in occupation. 5. He did not satisfactorily explain how his figure of £65 per sq ft on a headline basis could be reconciled with Mr Oates’ determination of £72.50 per sq ft for unit 3 on a net effective basis. There was evidence that Mr Oates’ figure was equivalent to a rent of about £80 per sq ft on a headline basis (assuming six months rent free) or about £90 (assuming one year rent free). He said: Accordingly, having given due consideration to all the evidence placed before me, together with making my own investigations I consider the location of the subject premises as being inferior both to Pride Hill itself and also Unit 3 ride Hill Centre which of course is considerably smaller and located on the main traffic flow entering the Pride Hill Centre from Pride Hill and passing through to other levels, whereas the subject premises are located in a more secondary position at the rear of the upper gallery level of the centre and accordingly, although I accept Mr Oates’ calculations are based on a partial analysis of any rent-free periods or capital contributions, that the subject premises would only be valued on the basis of the maximum figure of £65 in terms of zone A. 6. He did not explain what assumptions he had made about the level of inducement. As has been seen this can make a very substantial difference to the headline rent. 7. Mr Hasprey had assumed a two-year rent-free period for units 18/19. This would result in a net effective rent of about £30 per sq ft if his headline rent of £50 were correct. But £30 is significantly lower than the net effective zone A rents relied on by the claimants at the time of the rent review. They had relied on ‘true’ (ie net effective) zone A rents of about £42.49, £46.39 and £46 derived from units 12, 14 and 17. This disparity suggests that something is wrong. Conversely, if the defendant’s headline rent of £65 is coupled with Mr Hasprey’s inducement of two years rent free, the net effective rent is about £39 per sq ft, which accords more closely with the aforementioned rents. I consider that there is force in all these points and that it was permissible for Mr Buckingham effectively to disregard Mr Green’s determination. Charles Darwin Centre The claimant alleges that regard should have been had to the Charles Darwin Centre, where asking rents on the middle level were, according to Mr Hasprey, between £45 and £50 per sq ft on a headline basis. MrHasprey said in his report that the Charles Darwin Centre was more attractive than the Pride Hill Centre, had more anchor terms, gave a better impression of space and was visually more appealing. He also said that it offered better food-court facilities and was linked to a principal car park. Mr Buckingham said in his report that the defendant, and by inference the hypothetical reasonably competent valuer, would not have learned anything of relevance by investigating rental evidence from that centre. The matter was explored more fully in the oral evidence. It was common ground that Shrewsbury was over-shopped. The Pride Hill Centre had come on to the market first and let up well. The Charles Darwin Centre followed two years later and, as Mr Hasprey agreed, had never really ‘taken off’. The defendant explained that the Charles Darwin Centre ‘missed the boat’ and was then hit by the recession. The result was that they found it very difficult to let units on the middle level, shoppers therefore did not go there and it therefore became increasingly more difficult to find tenants. In consequence, the defendant found that the Pride Hill Centre was the more lively centre. There were some additional problems with the Charles Darwin Centre — Mr Hasprey acknowledged that some of the units were odd-shaped and large. As for anchor tenants it was incorrect to state that Marks & Spencer was a tenant at the Charles Darwin Centre, although the centre did have a connection to the back entrance of Marks & Spencer’s premises. |page:175| I consider that there are two reasons why the asking rents at the Charles Darwin Centre would not have been of any real relevance to the hypothetical valuer. First, on the approach applied by Mr Buckingham, the hypothetical valuer would have had to consider the headline rents that the hypothetical landlord of the Pride Hill Centre was seeking to achieve. Second, I am satisfied from the evidence given during the trial that the Charles Darwin Centre was significantly less successful than the Pride Hill Centre, and that premises on its middle level was not as attractive, from a retailer’s point of view, as those on the middle level of the Pride Hill Centre. Willing lessor and willing lessee There is no dispute that the hypothetical valuer had to consider the negotiations that would have taken place between a willing lessor and a willing lessee. The latter expression refers to abstractions, ie hypothetical persons, and not to the actual landlord (Royal Life Insurance) or the actual tenant (the claimant): see the guidance given by Donaldson J in FR Evans (Leeds) Ltd v English Electric Co Ltd (1977) 245 EG 657*. *Editor’s note: Also reported at [1978] 1 EGLR 93 The claimant alleges that it was wrong to assume that the willing lessor would have acted as Royal Life did in seeking to obtain a headline rent of £65 per sq ft. The defendant explained his thought process by saying that it was his judgment that the notional landlord would endeavour to let the premises at the same zone figure A as had actually been achieved, namely £65 per sq ft. He said that he could see no reason why the notional landlord should not have acted in the same way as the actual landlord. There had been evidence from Mr Hasprey about the relevance of the headline rent to other rent reviews and the capital value of the landlord’s interest in the Pride Hill Centre. Similarly, Mr Buckingham told me that he thought that the hypothetical landlord would have behaved as Royal Life Insurance did. I accept that there is an element of judgment involved. Logical reasons have been given for Royal Life’s attitude. Consequently I cannot say that no reasonably competent valuer in the position of the defendant and MrBuckingham would have taken the view that they did. The claimant also alleges that the wrong assumptions were made about the wishes of the hypothetical team. It is alleged that the hypothetical tenant would not have been prepared to pay an inflated headline rent in return for a substantial inducement because such a tenant would have been unwilling to be saddled with over-rented premises for the remainder of the lease. There was evidence that a likely tenant would have been a discounter, ie a retailer selling goods at discounted prices. Indeed, Mr Hasprey agreed that the tenant was more likely to be a discounter than someone of the covenant strength of the claimant. However, Mr Hasprey also agreed that discounters were ready to take headline rents backed by inducements, and this was also the evidence of Mr Wright. Furthermore, both Mr Hasprey and MrBuckingham were envisaging inducement of the order of a two-year rent-free period. In these circumstances, I cannot say that no reasonably competent valuer would have taken the view that the willing lessee would have been prepared to accept a rent-free period of this order in return for a headline rent significantly higher than an open market net effective rent. There is an associated allegation about supply and demand. It is common ground that Shrewsbury was over-shopped. However, transactions had been entered into at headline rents of about £65 per sqft at units 14 and 17 and I have already expressed my conclusions about the greater attractiveness, from a retailer’s point of view, of the Pride Hill Centre over the Charles Darwin Centre. I therefore cannot find that the existence of competition from other premises vitiated the approach adopted by both the defendant and Mr Buckingham. Conclusion Having considered the various matters I find that Mr Buckingham’s valuation in the sum of £107,000 was a valuation that could properly be reached by a reasonably competent valuer. Accordingly, the claimant’s claim must fail. Allegations in respect of the defendant’s methodology In case I am wrong in my decision on the legal test, I have also considered those allegations that relate only to the defendant’s methodology. The principal allegation is that the defendant failed to make inquiries of Mr Green, the expert who had been instructed to determine the reviewed rent of unit 9. The defendant had been aware that there was to be a rent review at unit 9 because he himself had been invited by the RICS to allow his name to be put forward. However, in April 1994 he did not know who had been appointed, or whether there had been any determination. The president of the RICS in fact appointed separate experts in respect of five units at the Pride Hill Centre, and determinations were made on the below mentioned dates: Mr Oates Unit 3 (Hinds) 30 June 1993 Mr Green Unit 9 (W. H. Smith) 16 March 1994 The defendant Unit 18/19 (Currys) 15 April 1994 Mr Kendall Unit 15 (Gullivers) 15 May 1995 Mr Cornes Unit 8 (Early Learning Centre) (date unknown) In his report Mr Hasprey said that it was normal practice for experts to confer and that the defendant should have followed this practice. In cross-examination Mr Hasprey accepted that this could not really be called a practice — it was simply something that it might be appropriate to do in certain circumstances. The defendant himself did not think that it would be proper to speak to Mr Green, and he told me that he wanted to make his own independent judgment. He was supported by MrBuckingham, who considered that such experts should not collude. I am quite satisfied that the defendant was not negligent in taking the view he did. It is interesting to note that Mr Green did not seek to discuss the matter with the defendant. The matter does not end there, because the claimant also alleges that the defendant should have endeavoured to find out whether the expert appointed in respect of unit 9 had made a determination, and if so what it was. It is alleged that the purpose of this inquiry would have been to enable the defendant to know of, and have regard to, the determination in respect of unit 9. I accept that some valuers in the position of the defendant might have wanted to know whether the expert appointed in respect of unit 9 had made a determination, and if so what it was. However, I have not been persuaded that no reasonably competent valuer in the defendant’s position would have refrained from making such inquiries. The defendant’s conduct must be judged in the light of all the circumstances, including the following: 1. He did not know the identity of the expert. 2. He did not know what stage had been reached with the unit 9 determination. The parties to that determination could have been negotiating just as the parties to his own determination had for some time negotiated. 3. He had received very extensive submissions from both the claimant and the landlord. They had each submitted that the best comparables were those on the middle level. Indeed, Mr Owen had gone so far as to submit that comparables on other levels were irrelevant. It would be reasonable to assume that one or other of these experienced surveyors would have notified him if they became aware of another comparable that, despite the aforementioned submissions, they considered to be relevant. Mr Morgan submitted two arguments on causation. First, he pointed out that there was no evidence that Mr Green’s determination had been made available to the parties to that rent review before the defendant made his determination. However, there was evidence that Mr Green made his determination on 16 March 1994, and I can safely infer that the parties instructing him would have been aware of the fact of its making (even if not the amount thereof) within at most a few days of 16March 1994, even if its publication was being held back (perhaps because Mr Green wished to be paid before releasing it to the parties). Consequently, it cannot be said that inquiries of the claimant and the |page:176| landlord prior to 15 April 1994 would have elicited a completely negative response. The defendant would at least have learned that a determination had been made and that its publication was imminent. Consequently, if I had found negligence established I would not have been prepared to find that there was no causative effect on this account. Second, he submitted that the defendant would not have changed his determination. The defendant said in evidence that there was nothing in Mr Green’s determination that persuades him that he ought to have taken a different course. I accept this evidence. I have referred previously to the criticisms that can be made of Mr Green’s determination. I therefore find that even if the defendant had seen MrGreen’s determination, he would probably still have determined the reviewed rent at £107,000. Asking rents at the Charles Darwin Centre The claimant alleged that the defendant should have ascertained the asking rents for vacant premises on the middle level of the Charles Darwin Centre, and that if he had done so he would have found that they were between £45 and £50 per sq ft ITZA on a headline basis. I accept MrHasprey’s evidence that in January 1993 asking rents were of this order. The defendant said that Mr Owen’s submission contained details of asking rents at the Charles Darwin Centre, and I was referred to a schedule at Appendix 26. This schedule showed the asking rents expressed as total rents. The defendant would have needed more information, such as floor areas expressed in terms of zone A, to calculate the asking rents for zone A. However, in the light of the assessment that he had made of the relative merits of the two centres, and the approach that he was adopting to the rent review, I do not consider that he was negligent in failing to make any further inquiries and/or to calculate zone A asking rents for the middle level of the Charles Darwin Centre. Damages In the light of my findings on liability, the assessment of damages does not arise. However, since the issue was fully argued it may be helpful if I express my views. I propose to do so by using assumed figures rather than algebraic terms. If I had found that liability was established and that the reviewed rent should have been correctly determined at £80,000 pa (Mr Hasprey’s figure), the claimant’s first head of loss would have been £33,750 (being the difference between £107,000 pa and £80,000 pa, namely £27,000 for the period of 1.25 years from 13 January 1993 to 15 April 1994). The second head of loss would have been the difference between: A. The value of the claimant’s leasehold interests at 15 April 1994, on the assumption that the reviewed rent had been determined at £80,000 pa (figure A); and B. The value of the claimant’s leasehold interests at 15 April 1994, the reviewed rent having been determined at £107,000 pa (figure B). This would be an assessment of the claimant’s loss at the date of the breach. I do not consider that there are any good reasons for departing from the breach date rule, particularly since the claimant had already decided to dispose of its leasehold interest: see generally Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254 at pp265H-267C. It is common ground that figures A and B would both have been negative, ie a reverse premium would have to have been paid to effect an assignment or surrender of the lease. I shall, for the moment, ignore the argument that any premium should be discounted to reflect the deferment of payment between 15 April 1994 and the date of any subsequent assignment or surrender. The claimant contends that figure A was minus £120,000 (representing a reverse premium of 1.5 year’s rent for the assignment of the lease). It maintains that the lease was effectively unassignable at the rent of £107,000 pa determined by the defendant, and contends that figure B is minus £914,165 (representing a reverse premium for the surrender of the lease to the landlord — this figure being calculated on the basis of £107,000 pa for the remainder of the term discounted at 9%pa with no allowance for the possibility of the landlord reletting the premises). This would give a loss of £794,165. The defendant contends that figure A was minus £160,000 (representing a reverse premium of two years’ rent for the assignment of the lease), and that figure B was minus £200,000 (representing a reverse premium for the assignment of the lease). This would give a loss of £40,000. Neither side has called an expert to state that any of the aforementioned figures represent his opinion of the value of the leasehold interest. The claimant called Mr Morris, an expert surveyor, but he made it clear that his calculations were based on the views of MrWright. Mr Wright was a surveyor who had acted for the claimant until about June 1994 in its attempted disposal of the premises, and although he gave expert evidence about the amount of reverse premium he would have expected the claimant to have had to pay, it would be wrong to regard his views as in any way a valuation of the premises. This is particularly so since his views were formed before the rent review determination, and at a time when he was unaware that the lease required a headline rent to be fixed. The defendant called Mr Buckingham, but he made it clear that the reverse premium of £200,000 for figure B was derived from the evidence of Mr Wallace. Mr Wallace was employed by Conrad Ritblat, which had acted for the claimant from about June 1994 in its attempts to dispose of the lease. He and his colleagues had estimated that a reverse premium of about £200,000 would have to be paid, although, in the event, they were unable to dispose of the property. He was called as a lay witness, not an expert. Again it would be wrong to regard his views on premium as equivalent to a valuation. There may have been tactical reasons why each party adopted the course that it did. In this unsatisfactory state of the evidence, I must do the best that I can. As Mr Morgan acknowledged, one is principally interested in the difference, or the relativity, between figures A and B. It is also, in my judgment, important not to lose sight of basic principles. I am satisfied that the proper comparison must be between the respective premiums required to assign the lease. It would be wrong to make a comparison between an assignment (for figure A) and a surrender (for figure B). This would not be comparing like with like. It was common ground that a surrender would be more beneficial to the claimant than an assignment because there would be no contingent liability for the assignee’s failure to pay the rent. I am also satisfied that the lease was capable of assignment if a sufficient premium was paid. I would therefore have rejected the claimant’s assessment of loss in the order of £794,165. One approach is to consider the extra burden on the assignee as a result of having to pay a minimum of £107,000 pa rather than a minimum of £80,000. The claimant accepts that one cannot realistically look into the future beyond the last rent review in January 2008. If this differential of £27,000 pa had persisted for 13.75 years (ie from 15April 1994 to 13 January 2008), and had not been eroded by subsequent rent reviews, the extra cost to the assignee would have been: £27,000 x 7.71 = £208,170 (where 7.71 is the years’ purchase for 13.75 years at 9%) It seems to me that the figure of £208,170 therefore represents an effective ceiling to the assessment of loss of value. It is then necessary to ask how a typical prospective assignee would have assessed the likelihood of having to pay such a differential for 13.75 years. Would it have considered that rents would increase anyway such that, following subsequent rent reviews, the differential would be eroded? The answer must depend on the degree to which the premises were over-rented, coupled with the economic outlook in April 1994. I have received no clear evidence about the net effective rent of the premises in April 1994. Mr Wallace said that he and his colleagues considered the net effective rent in the sum of 1994 to be about £60,000pa. Mr Morris said that Mr Hasprey and Mr Wright had advised that the net effective rent was about £45,000 or £50,000 pa. On any view, the premises were significantly over-rented at £107,000pa and would also have been over-rented (but to a lesser degree) if the rent had been determined at £80,000 pa. The economic conditions were generally poor. I therefore do not think that a typical assignee would have made much, if any, discount. This approach therefore suggests a loss of value of about £200,000. A cross-check can be made by taking figure A as minus £140,000 (being the average of the figures put forward by the parties) and figure B as minus £340,000 (being £200,000 less than figure A) and then looking to see what these premiums represent as a multiple of the over-renting. I propose to take the net effective rent in April 1994 as being £55,000 (being approximately an average of the figures put forward by the parties). Thus, for situation A the over-renting is £25,000 (£80,000 less £55,000) and the reverse premium of £140,000 represents a multiple (or years’ purchase) of 5.6. For situation B the over-renting is £52,000 (£107,000 less £55,000) and a reverse premium of £340,000 represents a multiple, or years’ purchase of 6.5. These YPs bear a proper relationship to each other, and to the ceiling YP of 7.71. In particular, one would expect the YP for situation A to be noticeably lower than the YP for situation B to reflect the greater likelihood of the over-renting being eroded in subsequent rent reviews. I regard the cross-check exercise as confirming my provisional assessment of £200,000, and, in the circumstances, I would have assessed the loss of value at £200,000. I would not have allowed any additional damages for the alleged extra time required to effect a disposal of the lease. There are two principal reasons. First, I have calculated the loss of value at 15 April 1994 without discounting the figures to allow for the period between 15April 1994 and any subsequent date when an assignment might have taken place. I think that this is the correct approach. Second, I am not satisfied that the chances of assigning within a particular period (say 1.5 years) are reduced by the degree of over-renting. It seems to me that the disadvantage to the assignee of a higher degree of over-renting is compensated by an increased reverse premium, which, on my finding, would be of the order of £200,000. I have received no clear expert evidence about the difference in the market for different types of assignees. If anything, the evidence about discounters being interested in the premises suggests that the higher the reverse premium the easier it should have been to find such an assignee. Accordingly, if I had found that liability was established and that the correct rent was £80,000, I would have awarded damages as follows: 1. Additional rent at £27,000 pa from  13 January 1993-15 April 1994 (1.25 years) £33,750 2. Loss of value of leasehold interest £200,000 £233,750 Overall conclusion There will be judgment for the defendant. While I have considerable sympathy for the claimant, its losses in respect of its lease are the result of the unfortunate terms of clause 6(2)(c) of the lease, and are not the result of any negligence by the defendant. Claim dismissed.