Landlord and tenant–Rent review clause in lease of office premises–Dispute referred to arbitration and consultative case stated by arbitrator on a point of law in course of arbitration–Proviso in lease that in determining the fair rack rental market value at date of review there should be disregarded inter alia any effect on rental value of tenants’ Improvements–‘Empty shell’ before tenants’ works–How to reflect inflation but not rental value of improvements–A judgment which valuers should study–Discussion of principles and different valuation methods–Whether to deduct annual equivalent of cost of improvements taken at review date from rental value of whole premises–Difficulties ensuing from difference between costs and values, assessment date and obsolescence–Whether to find from available evidence the rental value of improvements as a percentage of improved rental value at commencement of tenancy and apply this percentage to improved rental value at review date–Judge’s guidance to arbitrator
This was a
case stated by the arbitrator under the Arbitration Act 1950 in the course of
the arbitration (a consultative case) on matters arising from a review clause
in a lease of parts of Dolphin House, North Street, Guildford, for office use.
The tenants were GREA Real Property Investments Ltd. The landlord’s interest
was represented by Roy Granger Williams, the receiver appointed by the
landlord’s mortgagees, Credit Lyonnais.
Ronald
Bernstein QC and K Reynolds (instructed by Bischoff & Co) appeared on
behalf of the tenants; Leolin Price QC and G B W Nurse (instructed by Brecher
& Co) represented the receiver.
Giving
judgment, FORBES J said: This matter comes before me as a consultative case
from the arbitrator of a dispute between the parties. It concerns the terms of a
clause in a lease providing for a review of rent after seven years of the
tenancy. The parties before the arbitrator have taken different views of the
method by which the new rent should be calculated and both maintain that a
point of law arises which the court should determine before the arbitrator
proceeds any further.
The property
in question is called Dolphin House and it is a large modern edifice in North
Street, Guildford. What appears to have happened is that the developers who
were constructing the building ran out of resources before the building was
finally completed. It is a typical modern steel and concrete building, in which
the floors and roof are supported on a pattern of columns running from top to
bottom of the building. Although the demise to the tenants, who are the
respondents in this case, included certain other parts of the building, the
substantial part of their demise relates to the third floor which is used as
offices. It seems clear that when they took over that floor it consisted simply
of an expanse of bare concrete with a perimeter wall and a series of columns
between floor and ceiling. The tenants carried out all the building works
required to complete the floor so that it was fit for use, including such
things as lavatories, cloakrooms and so on, in addition to the usual tenant’s
works such as office partitioning and matters of that kind.
In recognition
of this the first six months of their tenancy was at a peppercorn rent and the
clauses in the lease which deal with rent review have certain special
provisions. The nominal claimant in this case is the receiver appointed by the
landlord’s mortgagees, Credit Lyonnais.
I should
examine the relevant provisions of the lease, which is dated February 11 1971.
The term is for 21 years from December 25 1969 and the reddendum provides
first, as I have said, that the rent for the first six months should be a
peppercorn. The rent for the remainder of the first seven years was £9,535. The
rent for the remainder of the 21 years’ term was to be ‘the rent as determined
by the provisions of Clause 6 hereof.’
There were various additions to the rent concerned with insurance
premiums and certain services provided by the landlord but these need not
concern us. It will suffice to turn straight to clause 6:
PROVIDED
ALWAYS and it is hereby agreed that at the expiration of the seventh and
fourteenth years of the term hereby granted (the time in each case being
computed from the date of the commencement of the said term and being
hereinafter referred to as ‘the date of review’ the rent shall from and after
the date of review be such sum as shall be agreed between the Landlords and the
Tenants as representing the fair rack rental market value of the demised
premises for the then residue of the term of years hereby granted as between a
willing landlord and a willing tenant with vacant possession and in all
respects on the terms and conditions of this Lease (other than the rent) and if
the Landlords and the Tenants shall be unable to agree on the amount of such
rent as aforesaid the same shall be decided by some competent person to be
agreed to by the Landlords and the Tenants or in the event of failure so to
agree by a person (hereinafter called ‘the Arbitrator’) to be named by the
President for the time being of the Royal Institution of Chartered Surveyors
who shall act as an arbitrator PROVIDED ALWAYS that the Landlords and the
Tenants and such Arbitrator shall in agreeing or deciding the amount of the
rent upon any such review disregard:
(a) any effect on the rental value of the demised
premises of the fact that the Tenants have or their predecessors in title have
been in occupation of the said premises.
(b) any goodwill attached to the said premises by
reason of the carrying on thereon of the Tenants’ business.
(c) any effect on the rental value of any
improvement carried out by the Tenants or their predecessors in title otherwise
than in pursuance of an obligation contained in this Lease and in particular
but without prejudice to the generality of the foregoing any such effect of any
works of fitting out and finishing the demised premises to acceptable office
standards carried out by the Tenants at the commencement of the term hereby
created.
As I
understand it, valuers would have no difficulty over the technical methods to
be used for arriving at what was ‘the fair rack rental market value of the
premises,’ having regard to the criteria set out in clause 6, were it not for
the terms of the proviso which set out what has to be disre-
landlord and tenant respectively have adopted wholly different valuation
methods, having regard to the terms of this proviso, that the arbitrator has
been persuaded to state this consultative case. It is difficult to decide a
matter like this without knowing what the technical differences between the
parties are, and both parties have helpfully put before me affidavits by the
respective valuers explaining their differing approaches and conclusions.
It is a fundamental
aspect of valuation that it proceeds by analogy. The valuer isolates those
characteristics of the object to be valued which in his view affect value and
then seeks another object of known or ascertainable value possessing some or
all of those characteristics with which he may compare the object he is
valuing. Where no directly comparable object exists the valuer must make
allowances of one kind or another, interpolating or extrapolating from his
given data. The less closely analogous the object chosen for comparison is the
greater the allowances which have to be made and the greater the opportunity
for error.
Now in this
case no difficulty arises over subclauses (a) and (b) of the proviso to clause
6–the elimination of goodwill and of the effect of occupation by the present
tenants. The only difficulty is over (c), the elimination of the value
attributable to the tenants’ improvements. These, it will be remembered,
involved substantially the conversion of the tenants’ part of the building from
an empty shell to premises fit to be let to a commercial tenant. The occasions
on which tenants carry out improvements of this character are sufficiently rare
to present the valuer with this problem; it is virtually impossible to find a
case where a building has been let in the state of an empty shell, so that
directly analogous comparables are non-existent. There is, however, one fairly
closely analogous case, namely the letting of this very building at the
beginning of the current lease. The main difference between the situation then
and the situation now is due to the passage of time and its effect upon rental
values in the interim.
It is said
that the determination of the proper method of valuation to adopt in this case
involves a point of law. It has been pointed out to me that section 34 of the
Landlord and Tenant Act 1954 contains provisions very similar to those of
clause 6 in this lease:
34(1). The
rent payable under a tenancy granted by order of the court under this Part of
this Act shall be such as may be agreed between the landlord and the tenant or
as, in default of such agreement, may be determined by the court to be that at
which, having regard to the terms of the tenancy (other than those relating to
rent), the holding might reasonably be expected to be let in the open market by
a willing lessor, there being disregarded–
(a) any effect on rent of the fact that the
tenant has or his predecessors in title have been in occupation of the holding,
(b) any goodwill attached to the holding by
reason of the carrying on thereat of the business of the tenant (whether by him
or by a predecessor of his in that business),
(c) any effect on rent of any improvement carried
out by the tenant or a predecessor in title of his otherwise than in pursuance
of an obligation to his immediate landlord.
Paragraph (c)
applies to tenants’ improvements ‘carried out otherwise than in pursuance of an
obligation to his immediate landlord.’
This section, of course, applies to determination of rents by the courts
where a new lease of business premises is made under the Act. Its provisions
are therefore applied very commonly in many cases up and down the country. I am
told that there is no judicial pronouncement upon the valuation method proper
to be adopted to reflect the words of the statute or the equally commonly
applicable words to be found in leases of the kind before me. It is suggested
by both counsel that in determining the present difference between the parties
I should be mindful of the fact that any principle I may seek to lay down
should be equally applicable to these other cases. Further, I am reminded that
rent review clauses are now very common, owing to the incidence of inflation,
and that some of the leases which contain them may be for much longer than the
21 years of this lease. Again it is suggested that any principle enunciated
should be equally valid when applied to the last rent review of, say, a 50
years’ lease as to the first review of the present one. I would not accept that
my determination of what is legally appropriate to the interpretation of this
contract between these parties should necessarily be swayed by consideration of
similar wording in the statute. The provisions of the statute may well fall to
be construed by what the courts consider to be the intention of Parliament; the
provisions of a lease must be construed in the light of what the courts
conceive to be the intention of the parties. This may be the same or it may
not. Although it would be right to bear these other matters in mind, I shall
stick to the lease. In doing so I shall of course remember that it provides for
another review at the 14-year stage. The only question of law, however, seems
to me to be the determination of the intention of the parties in relation to
the process of agreeing the rent at the review stages.
It is now
trite law to say that you cannot construe a contract in vacuo. ‘No
contracts are made in a vacuum. There is always a setting in which they have to
be placed. The nature of what is legitimate to have regard to is usually
described as ‘the surrounding circumstances,’ but this phrase is imprecise: it
can be illustrated but hardly defined. In a commercial contract it is certainly
right that the court should know the commercial purpose of the contract and
this in turn presupposes knowledge of the genesis of the transaction, the
background, the context, the market in which the parties are operating.’ And again, ‘I think that all of their
Lordships [Viscount Haldane LC, Lord Kinnear and Lord Dunedin in Charrington
& Co Ltd v Wooder [1914] AC 71 at pp 77, 80 and 82 respectively]
are saying, in different words, the same thing–what the court must do must be
to place itself in thought in the same factual matrix as that in which the
parties were.’ These are quotations from
the opinion of Lord Wilberforce in Reardon Smith Line Ltd v Yngvar
Hansen-Tangen [1976] 1 WLR 989 at pp 995-997B respectively.
I think the
intention of the parties was clear. First, they both realised that in an
inflationary period the rent appropriate at the beginning of the lease would
almost certainly not represent a fair rent as between the parties at the end.
Rather than make an estimate of the rent which, having regard to possible
inflation, might be charged over the full 21 years, they chose to fix it only
for the first seven and to provide for review at that date and at the 14-year
date. Secondly, they realised that, because the tenant was paying for
considerable works to be done which would ordinarily have been completed by the
landlord, it would be fair that the landlord should not have the rental benefit
of those works during the currency of the lease. For this reason the rental
equivalent of the tenants’ works was to be eliminated from the rent to be
agreed at the reviews. In approaching any valuation here valuers must use some
method of valuation which carries out the intention of the parties that the
rent payable to the landlord should keep pace with inflation and that from such
rent should be eliminated the rental equivalent (itself affected by inflation)
of the tenants’ works. Any such method must also proceed along lines which are
logically sound and can be seen to be consonant with commonsense. In this
connection it is important that in the exercise of drawing analogies and making
comparisons like should be compared with like. You can do anything to an
equation without altering its validity so long as you do it to both sides. If
it is desired to compare, as here, the situation in 1969 with that in 1976 it
is of the utmost importance that you should not assume without evidence
that value and costs are synonymous terms, and any method of valuation which
involves using these two concepts as if they were always interchangeable is
logically suspect. It may be that seven years of inflation has had precisely
the same effect in monetary terms on values as it has on costs, but it is much
more likely that it has not. Further, a figure which is
mathematical absurdity as a suggestion that three apples plus two oranges
equals five bananas.
Although the
matters primarily affecting landlord and tenant in agreeing the rent and rent
review clauses were the incidence of inflation and the works carried out by the
tenant, there will have been others of secondary but nevertheless of
considerable importance. The tenant would have in mind in 1969 the cost of the
works he was to carry out and of borrowing the capital to complete them, the
length of the lease (including his assessment of the prospect of obtaining a
new one under the 1954 Act), and the annual equivalent of his total cost spread
over the length of the lease. He would envisage spreading the cost over the
whole length of the lease and not merely the first seven years because he would
know that he would derive effective benefit from them for the whole period,
since the rental value of his works would be eliminated from consideration at
the rent reviews. He would also know, as would the landlord, that the benefit
he would derive from his expenditure would cease at the termination of the
lease, or any extension under the Act of 1954, and to this extent would be a
wasting asset. Both parties would also consider the question of obsolescence and
the incidence of the passage of time. In this case the works were really part
of the building operations which should have been carried out by the landlord
and no one suggests that they would become obsolete and require replacement
before the end of the term. But no doubt some classes of improvements in some
long leases might cause the parties to contemplate the necessity for
replacement before the termination of the lease. Even though there was no such
possibility here both parties would be well aware that as time passed the
improvements would be ageing and that at the review periods envisaged they
would be respectively seven and 14 years old. The parties would also
contemplate that in approaching any question of agreement at the reviews they
would be advised by valuers, who would be careful to ensure that in any
comparisons made, whether of premises, circumstances or situations, like should
always be compared with like.
The only
principle of law which I think it necessary to enunciate is thus the simple one
that any method of valuation must properly reflect the intention of the parties
as expressed in the lease: that in arriving at that intention the court, and
the valuer, must ‘place itself in the same factual matrix as the parties were’;
and that this involves giving proper weight to the matters which as primary and
as secondary considerations I have already set out.
The rival
methods of valuation are set out shortly in the case itself but have been
considerably expanded by affidavits from Mr C H Toye, the landlord’s valuer,
and Mr E T Hartill, the valuer for the tenant. Briefly, the tenant’s contention
is that the correct way to disregard the effect on the rental value of the
premises of the tenant’s works is to value the premises, as at the review date,
on the assumption that the tenant’s works did not exist. As has already been
pointed out, it is impossible to find examples of rents charged for comparable
buildings in such a state, so that some other method must be sought to arrive
at a valuation on this assumption. Mr Hartill accordingly starts with the
rental value of the building as it is, improved, and at the review date. There
is no difficulty about this and comparable cases abound. He then goes on to
envisage the hypothetical tenant calculating what it would cost at the
review date to fit out those premises with the improvements as they exist
(including the cost of servicing the capital borrowed for the purpose) and then
determining the annual equivalent of that cost having regard to the length of
the lease (including any prospect of a new one under the Act of 1954). Mr
Hartill then deducts this annual equivalent from the assessed rental value of
the whole premises to arrive at the rent due to the landlord from the review
date. The method he chooses to find the costs of the works as at the review
date is to take the historical cost of the works in 1969 and multiply that by a
factor which is the index of the increase of building costs generally between
1969 and 1976, a figure of 2.81. He also, incidentally, includes in his
reduction from capital cost to annual equivalent a factor for a sinking fund in
favour of the tenant.
Mr Price, for
the landlord, attacks this method. He starts by arguing that, as the clause
speaks of ‘the fair rack rental market value of the demised premises,’ a
phrase which necessarily includes the improvements, there is no valid argument
for adopting any method of valuation designed to find the appropriate rent for
the ‘shell,’ that is, the building without the tenant’s improvements. That, he
says, would be to value not the demised premises but the premises before the
carrying out of the tenant’s works. I cannot accept this argument in the broad
terms in which it was originally stated. It does not seem to me to matter
whether one starts with the value of the improved building and deducts the
rental value of the improvements, or values the unimproved building direct, so
long as one is properly taking into account inflation and the value of the
improvements. The object of the valuation exercise is to find the rent payable
to the landlord. If A-B=C and the object is to find C it would be ludicrous to
disregard the known value of C, if it were known, in order to go through the
process of finding A and B and subtracting the one from the other. If there is
evidence which enables a valuer to value the landlord’s share direct then it
seems to me that he will have eliminated the effect on rental value of the
tenant’s share: to this extent Mr Price’s argument is too wide. The difficulty
may be that there is no such evidence.
To take an
example: suppose three identical and adjacent four-storey Victorian houses in a
good residential area of London. The owner of all three properties installs a
lift in house A and lets it. The prospective tenant of house B wishes to leave
the property as it is and endure the disadvantage of climbing up and down three
flights of stairs. The prospective tenant of house C, however, would prefer a
lift and, by agreement with the landlord, installs it himself. All three houses
are let for 21 years on leases with rent reviews at seven and 14 years, but
tenant C’s lease contains a proviso in the same terms as the lease in this case
because of his expenditure on the lift. It would I think be an extraordinary
thing if the valuer of property C were to be told that, at C’s review, he must,
whatever the circumstances, disregard the rent agreed at B’s review because
that was a rent of premises before the carrying out of tenant’s improvements.
Valuers work, as I have said, by analogous comparables, and a rent, freely
agreed, for premises which are identical but for the tenant’s improvements
seems to me, other things being equal, to be the best evidence of the rental
value of the improved premises ‘disregarding the rental value’ of those
improvements. It is when other things are not equal or, as here, when no such
comparable exists, that valuers may be driven to other shifts.
Mr Price’s
argument, however, seems to me to have more general validity if its terms are
somewhat altered. To value premises by assuming that the tenant must pay for
the improvements at the time of the review is to disregard the existence
of the improvements and not necessarily their rental value. If, in the example
I have given, you value house C by a method which involves deducting the annual
equivalent of the cost of installing the lift at 1976 prices you may be
‘disregarding the rental value’ of the improvements but if so only by the
accident that the rental values of premises with lifts have increased at the
same rate as the cost of installing the lifts in them. This accident may in
fact occur if the market in which these rental values operate is such that
tenants regard lifts as virtual necessities. In such a situation any person
considering the tenancy of a house which had no lift would regard it as
essential that one should be installed and, provided he could achieve a
satisfactory length of lease having regard to the expenditure required, and
also the inclusion of safeguards such as those in the proviso to clause 6,
might well install it himself. Mr Price is right to this extent that the prob-
lem facing the valuer is that the building he is valuing is in fact improved.
The basic fact is therefore that the tenant is not going to have to pay for the
improvement. If the improvement is not regarded as a necessity a tenant could
no doubt be tempted to pay a higher rent for an improved property, but this
would be according to his estimate of the desirability of the improvement. The
more desirable, the nearer the acceptable increase in rent would approach the
annual equivalent of the cost of installation. The measure of desirability of
any class of improvement would depend on the views of the persons making up the
market.
To subtract
from the accepted rental value of an improved building the annual equivalent of
the capital cost of the improvement at the review date (which is Mr
Hartill’s approach) thus may be a satisfactory method of disregarding the
rental value of the improvement and of reflecting the incidence of inflation
which the parties intended, but only if one or other of two conditions is
satisfied. The first is that the rate of inflation has had the same effect on
rental values as it has had on the cost of the improvements. The second is
that, in the market which is being envisaged, the improvement would be regarded
as a necessity or very nearly so.
But there is
another factor which must be taken into account. At the start of the lease the
tenant, having performed the calculations which produced the annual equivalent
of the capital cost of the works, thought it justifiable to incur that cost
because he would reap the benefit over the full period of the lease (plus any
statutory extension). It does not in the least follow that a tenant faced with
such expenditure at the first review date would regard it as economically
sensible to pay the capital cost of a benefit which would only accrue to him
over a shorter period; at the second review date the likelihood of such
expenditure (particularly if inflated) being considered worthwhile may recede
even further. The officious bystander may no longer be a fashionable interloper
when considering implied terms in a contract but he may still provide a useful
catalyst when determining the intention of the parties. I am quite certain that
if he had intervened during the discussions which preceded the lease to say
that, at the second review date, there would have to be envisaged a
hypothetical tenant who might not regard it as sensible to install the
improvements unless he obtained the premises rent free or even was paid by the
landlord to occupy them, both parties would have said ‘But we both know that in
fact no tenant will actually have to pay for any improvements: they already
exist.’
If, therefore,
a method of valuation has to be adopted such as that put forward by Mr Hartill
it will not only be necessary to demonstrate that one or other of the
conditions I have already mentioned is fulfilled: there will also have to be
some modification, if any is possible, to take account of the fact that what is
being valued at each review date is the rental equivalent of a benefit to the
tenant which the parties envisaged was to be incurred at the start of the lease
and written off over the period of the lease and any extension of it. I might
add that Mr Hartill’s adoption of a sinking fund in deriving the annual
equivalent of the capital cost seems here, if I have understood its purpose
correctly, to be singularly inappropriate where the underlying fact is that the
tenant will inevitably lose and the landlord gain the residuary value of the
improvements at the end of the lease.
There is, too,
the question of obsolescence. The improvements, the rental value of which is to
be disregarded, at the first review will then be seven years old: at subsequent
reviews they will, of course, be still older. Some effect should be given to
this factor where appropriate as well as the others.
Now I have no
evidence about the extent to which these improvements can be regarded as
essential, nor have I any cogent evidence about the relative effects of
inflation on site values, rental values, major building works or works of
improvements such as the tenant here carried out. Nor do I know to what extent
Mr Hartill’s valuation can be regarded as giving effect to age or the fact that
the benefit to the tenant should be regarded as a wasting asset. Such evidence
will be necessary if any such exists, before it can be shown that Mr Hartill’s
method adequately reflects the intention of the parties, but this must be a matter
for the arbitrator.
The landlord’s
valuer, Mr Toye, starts by assuming that in agreeing the rent for the first
seven years the parties had in fact performed the exercise which is now being
called for, namely they had, in fixing the rent for the demised (and therefore
improved) premises disregarded the effect on that rent of the improvements. The
rent they agreed was £9,535. By the use of readily available evidence of the
1969 values of comparable completed office buildings he deduces a market rent
for Dolphin House, as improved, of £11,000. The difference between the two
figures (£1,465) is 13.3 per cent of the rent deduced for the improved
building. He then finds, again from comparable buildings, the 1976 rental value
of the improved building to be £40,000. He applies the same percentage (13.3
per cent) as representing the value of the tenant’s improvements (£5,320) and,
subtracting this from the figure for the improved building, arrives at a final
figure of £34,680. This method has the considerable merit that it is founded on
an assumption which appears unassailable, namely that the rent initially agreed
by the parties did in fact incorporate an agreed discount which the parties
thought properly reflected the effect on rent of the tenant’s works, and the additional
attraction that it is both simple and relies on readily-available data, namely,
the rents at the two relevant dates of comparable completed office buildings
and the rent actually contained in the reddendum.
But while the
calculation for 1969 would seem to rest on a firm base in relation both to the
intention of the parties and to the dictates of commonsense I am not so sure
about the 1976 calculation. This assumes that the proportion which the value of
the tenant’s works bears to the whole will remain constant whatever happens. It
may be, however, that inflation has had, or would have in the future, different
effects on site values, major construction works and works of improvement such
as the tenant’s here; these are the three components which make up the total
value of the building. It may be also that, even if inflation has had different
effects, the comparative magnitudes of the three component figures would mean
that wide variations between the rate of inflation for one component on the one
hand and the other two on the other would not seriously affect the validity of
the final calculations. Again, I have no evidence of these matters which, in
any case, should be for the arbitrator to evaluate and not for me.
The landlord’s
valuer, Mr Toye, before finally adopting the method I have already described
canvassed another method. This involved considering the historical cost of both
the tenant’s works (ie the improvements actually carried out by the tenant) and
the ‘landlord’s works’ which Mr Toye defined as the site and the remainder of
the building works other than the tenant’s works. The combination of tenant’s
works and landlord’s works (as so defined) equals the totality of the improved
building. He would then apply to any rental valuation of the improved building
at the review date the percentage which the cost of the tenant’s works bore to
the costs of the whole improved building. He also expounded a refinement of
this method involving a comparison of the capital value of the completed and
improved building in 1969 with the historic cost of the tenant’s works. It
seems to me that both these methods suffer from the same defect which afflicts
Mr Harthill’s method. The landlord’s works, as defined by Mr Toye, includes the
value of the site as well as the landlord’s building works. The percentage sum
to which he is committed is thus based on a mixture of site value and building
costs (itself a doubtful mathematical exercise) and its validity as an index
must depend on the rate of inflation of site values and building costs
remaining the same. It is only fair to add that if the proportion of the whole
represented by the site value is very small there would be only a small error
even if the rates of inflation varied widely. But there is still the
difficulty that this approach also subsumes an equal rate of inflation for
works of the character of the landlord’s building operations (major steel and
concrete framed building) and the tenant’s (final fitting out for occupation).
Mr Toye himself recognised that there were other defects in these methods in
the circumstances surrounding this particular building and therefore rejected
them in favour of the approach I earlier set out.
In summary, I
conclude that the intention of the parties as expressed in the lease, having
regard to the factual matrix in which the parties made their initial agreement,
can be shortly set out as follows:
(1) in view of the possibility of inflation the
rent must be reviewed at the seventh and 14th years in order to do justice
between landlord and tenant;
(2) in view of the tenant’s expenditure he was to
be credited with the rental equivalent of the works the subject of that
expenditure which might itself be affected by inflation; but this was to be the
sole benefit which the tenant was to derive from his expenditure (apart from
the initial rent-free period which can be disregarded at the review dates);
(3) the improvements themselves would be paid for
once and for all at the start of the lease, and at the end of the lease (or any
extension) enure for the benefit of the landlord, and in consequence the
improvements so far as the tenant was concerned should be regarded as a wasting
asset;
(4) the passage of time would mean that at the
reviews the improvements would be no longer new; it would be seven- and
14-year-old improvements which fell to be valued;
(5) the valuers in making comparisons of any kind
would be careful to compare like with like, bearing particularly in mind that
the influence of inflation might differently affect values and costs.
As I perhaps
have adequately indicated already, I have no facts which would enable me to
decide whether any of the various methods of valuation suggested do in fact
meet these requirements though I have considerable doubts about the extent to
which certain methods can properly be said to be consonant with these
intentions. I hope, however, that what I have said will enable the parties to
address their minds to the question of what further evidence their valuers
should adduce and the arbitrator to decide how far their valuations coincide
with the intention of the parties as I have sought to express it.
It was
ordered that the costs of this case should be reserved to be dealt with by the
arbitrator. Leave to appeal to the Court of Appeal was given.
