Rent review — Valuation of retail premises — Arbitrator applying requirement in lease to value on overall basis rather than on zoning basis — Whether grounds for challenging arbitrator’s award — Sections 68 and 69 of Arbitration Act 1996 — Claim dismissed
The claimant was the landlord and the defendant was the tenant under a 25-year lease, from 1994, of a retail unit covering a gross area of 21,333 sq ft on the ground floor and two upper floors. The lease provided for an upwards-only rent review in August 1999, and every five years thereafter. At the review, the property was to be valued upon the assumption of a hypothetical open market letting with vacant possession for the residue of the term and upon the terms of the actual lease. The open market value was to be calculated “on the basis of a letting of the store on an overall per square foot basis rather than on a zoning basis and disregarding the existence of the return frontage…”. In default of agreement between the parties on the reviewed rent, a chartered surveyor was to be appointed as arbitrator, and “in such arbitration neither party shall introduce as evidence and the arbitrator shall not be entitled to consider any evidence based on (a) any comparable property having an area of less than 5,000 square feet gross internal area…”.
The parties failed to agree a rent for the 1999 review, and an arbitrator was appointed. After examining the various comparables placed before him by the parties, the arbitrator concluded that the open market rental value of the property was £425,000 pa.
The landlord brought proceedings to challenge that valuation. It argued that the arbitrator had been misled by the direction to value the property on an overall basis, with the result that he had refused to give any weight to comparable transactions where the zoning method of valuation had been used to arrive at the rent. It submitted that this was a “serious irregularity” within the meaning of section 68 of the Arbitration Act 1996, and was also an error of law in respect of which leave to appeal should be given under section 69.
Held: The claim was dismissed.
The arbitrator had been legally correct in rejecting the argument raised by the landlord. The argument before the court had not been presented to the arbitrator, and was not one that he had been asked to determine, as required by sections 68(2)(d) and 69(3)(b) of the 1996 Act. His failure to deal with the landlord’s argument did not constitute an error of law or an irregularity. Accordingly, no order would be made remitting the award to him under section 68, and leave to appeal under section 69 would be refused.
Michael Barnes QC (instructed by Manches) appeared for the claimant; Nicholas Dowding QC (instructed by Finer Stephens Innocent) appeared for the defendant.
Sally Dobson, barrister
