Long lease of shopping mall unit as extension to existing department store – Unusually high frontage to depth ratio – Valuer’s determination at rent review well below landlord’s expectations – Whether valuer negligent in failing to use zoning method – Whether valuer had negligently considered himself bound to disregard certain factors otherwise favourable to landlord
By an underlease made in 1979 the plaintiffs demised unit 62 in the recently built Lewisham Centre to Marks & Spencer for a term of 100 years (less 20 days) at fixed rents for the first two seven-year periods and thereafter subject to review on each 21st anniversary of the lease. Built as an extension to the rear of an existing M&S store fronting the High Street, the unit, which included two small upper floors, had a frontage of 145 ft on to the main mall of the centre and a depth of 84 ft. Subject to the consent of the landlord (not to be unreasonably withheld) the lease permitted the tenant to make alterations and to underlet not more than three separate parts of not less than 2,000 sq ft each (the part-underletting possibility). In April 1993 the defendant surveyor was appointed pursuant to the rent review provisions to determine as from July 3 1993 the rent at which the premises might reasonably be let as a shell building, disregarding any effect on rent of any voluntary improvement carried out by the tenant (the improvement disregard). On January 16 1995 the defendant formally determined the rent at £250,000 pa. The plaintiffs, contending that a reasonably competent surveyor would have arrived at a figure close to £430,000, alleged that the defendant had been negligent,inter alia, in that: (i) he had used an overall method of arriving at a figure per sq ft in preference to the “zoning method” which places a premium on floor areas at or close to the front of the shop; (ii) he had wrongfully considered himself bound by the decision of the Court of Appeal in Iceland Frozen Foods plc v Starlight Investments Ltd [1992] 1 EGLR 126 to disregard (to the detriment of the plaintiffs) the value to the tenant of the part-underletting possibility and to leave out of account rents paid in respect of otherwise comparable units on the ground that these were unreliable, having been agreed before Iceland.
Held Judgment was given for the defendant.
1. There was a consensus of expert opinion that the zoning method was almost always preferable for retail units of an area of 5,000 sq ft or less and that, where that method was used, a substantial discount should be applied where the shop, like the present, had an unusually high frontage to depth ratio. Given that the defendant had, as evidenced by his notes, performed a comparative exercise using the zoning method he could not be censured for adopting the overall method even though other experts might well have taken a zoning approach.
2. In Iceland the Court of Appeal had considered a lease containing both an improvement disregard and a part-underletting possibility and had ruled that the presence of the former required the disregard of the latter. Although a court of first instance, if deciding the issue as between landlord and tenant, could and probably would distinguish Iceland on its particular facts, that was no reason for finding that the defendant had failed to exercise reasonable care in arriving at his view, which had been largely based upon legal advice sought and received during the course of the determination.
Kirk Reynolds QC and Nicholas Dowding QC (instructed by Nabarro Nathanson) appeared for the plaintiffs; Michael Douglas QC (instructed by Hammond Suddards) appeared for the defendant.