Lease containing rent review clause – Independent expert appointed to determine new rent – Rent fixed on basis of being a headline rent – Whether new rent negligently determined – Whether expert’s valuation could properly be reached by reasonably competent valuer – Claim dismissed
The claimant tenant was granted a 25-year full repairing and insuring lease, commencing 13 January 1988, of retail premises at units 18 and 19, Pride Hill Centre, Shrewsbury. The premises were on the middle level of the centre and consisted of 3,304 sq ft of retail space with 1,587 sq ft storage on the lower level. The initial rent was £72,000 pa. The lease provided for rent reviews every five years, and for the landlord’s maintenance costs to be recovered by way of a service charge. Clause 6(1) stated that the revised rent was to be “an amount … which shall represent the open market value of the demised premises at each relevant date of review…”. Clause 6(2)(c) stated “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 rental 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.”
At the first rent review on 13 January 1993, the parties were unable to agree the amount of the revised rent. The defendant was nominated to act as an independent expert to determine the rent. A dispute arose as to the meaning and effect of clause 6(2)(c) and the defendant received legal advice that the new rent was to be fixed on the basis of it being a “headline rent”. On that basis he determined the rent at £107,000 pa, although it substantially exceeded the level that could be described as the true or net effective rental value of the premises in the open market. The claimant contended that the defendant was in breach of his contractual duty to exercise reasonable skill and care, and that the new rent should have been determined at £80,000 pa. It was contended, inter alia, that the defendant had been negligent, first, in taking into account comparable transactions without considering relevant post-review events and, second, in his conclusion that a notional landlord of premises such as the shopping centre might have an incentive to offer inducements in order to keep the headline rents high.
Held: The claim was dismissed.
1. There was no material difference in legal principle between a surveyor who undertook to provide a valuation of property and one who undertook to determine the rent under a rent review clause. In both cases the valuation exercise was an art and not a science and that was particularly so where more than one approach to the determination of headline rents might be appropriate. Accordingly, it was necessary for the claimant to show that the defendant’s determination was one that no reasonably competent surveyor could have reached and it could not be concluded that it had done so: Craneheath Securities v York Montague Ltd [1996] 1 EGLR 130 and Merivale Moore plc v Strutt & Parker [1999] 2 EGLR 171 followed.
2. The defendant’s approach in determining the headline rent by noting that the landlord might, at the time of the review, have paid large incentives to incoming tenants and thereby keep the rent artificially high, was one that would have been adopted by at least some competent surveyors. Accordingly, it was an approach he had been entitled to take. The defendant had also been entitled to have regard to comparable transactions and to rely on para 3710 of Hill & Redman when disregarding, without seeking legal advice, post-review events that would not have been known to the parties at the date of the review.
Michael Barnes QC and Jonathan Karas (instructed by Titmuss Sainer Dechert) appeared for the claimant; Paul Morgan QC and Edward Cole (instructed by Kennedys) appeared for the defendant.
Thomas Elliott, barrister
