Accounting giant KPMG may be forced to pay an extra £90m rent and reconsider its strategy to consolidate its City offices after losing a lease dispute with landlord Network Rail and developer Malory Clifford.
The High Court dismissed KPMG’s bid to exercise a break clause in its lease of 108,000 sq ft at 1 Puddle Dock, London EC4, by giving notice to Network Rail between July 2007 and July 2008.
The ruling means that KPMG is trapped in the lease until it expires in 2029 or until Network Rail conducts an upward rent review, which seems unlikely, given that the building is significantly overrented at around £40 per sq ft or £4m pa.
However, KPMG said that the result would “not affect the outcome of the wider review of our property portfolio”.
The firm, which appointed Jones Lang LaSalle a year ago to seek new, 500,000 sq ft headquarters, maintained that it would continue the strategic evaluation of its offices even though Puddle Dock is one of its largest City buildings.
A spokesperson added that KPMG would decide whether to appeal once the judge had responded to a request for clarification.
It is thought that KPMG may try to exercise a separate break clause if a major redevelopment of nearby Blackfriars station goes ahead in around 2008 as part of the Thameslink 2000 scheme.
The dispute turned on a sentence that had been omitted from the executed lease. KPMG claimed that the phrase, which limited the firm’s ability to initiate a break to those years in which Network Rail conducted an upward review, was deleted after negotiations between the parties.
However, Lewison J upheld arguments by Network Rail that the deletion had resulted from a “mutual mistake”, and that the lease should therefore be rectified. “I cannot but think that the obvious reason why the [lease] was executed containing a clause so ineptly drafted is simply because the omission was overlooked,” he said.
KPMG is based in five main buildings in the Blackfriars area, including its head office in Salisbury Square, London EC4; 235 Blackfriars Road, London SE1; 20 Farringdon Street, London EC4; and 1-2 Dorset Rise, London EC4. It also has in excess of 100,000 sq ft in Canary Wharf, Docklands.
KPMG LLP v Network Rail Infrastructure Ltd Chancery Division (Blackburne J) 31 January 2006.
Hazel Williamson QC and Richard Fowler (instructed by Linklaters) appeared for the claimant; Michael Driscoll QC and Tom Leech (instructed by Thomas Eggar) appeared for the defendant.
References: EGi Legal News 06/02/06
