Business lease – Rent review clause – Assumptions – Claimant tenant using site as drive-through hamburger restaurant – Valuation on basis that modern single-storey warehouse built on site – Whether describing type of building only – Whether implying a particular use – Whether planning permission for retail use to be assumed – Claim allowed in part
In the mid-1980s, the claimant was interested in acquiring a site owned by the defendant’s predecessor in title in order to develop its first UK drive-through hamburger restaurant. In 1986, it took a lease of the site for a term of 50 years on terms that required it to use the site only as a restaurant with ancillary accommodation, storage, staff facilities and car-parking space, or for such other retail purposes as the landlord might authorise in writing, such authority not to be unreasonably withheld or delayed. A rent review clause provided for reviews in 1990 and every five years thereafter, with the last review taking place in 2030. The reviewed rent was to be the full market rent of the demised premises, disregarding any restriction as to the permitted use and calculated on one of two bases; the second required the assumption that the premises were “a modern single storey warehouse comprising 20,000 net useable square feet of which 15% in area were useable as ancillary offices and constructed to a high standard in accordance with all statutory and other relevant consents with all usual amenities”. The claimant obtained planning permission for its drive-through, which was duly constructed.
The defendant acquired the freehold reversion to the site, following which a dispute arose between the parties as to how the rent was to be assessed at the next review. The claimant contended that in valuing the premises on the basis that a warehouse stood on the site, the word “warehouse” merely described the type of building; it did not provide any indication as to the use to which it was put. The defendant argued that “warehouse” described not only a building type but also the use to which it was put.
Held: The claim was allowed in part.
The second basis of valuation under the rent review clause altered the physical entity to be valued, without changing the terms of letting. The relevant clause did no more than describe a building type. The type in question was a “modern” warehouse building; given that a warehouse had a limited life and the final review was to take place 45 years after the date of grant, this meant modern as at the date of each review rather than at the date of grant. The warehouse should be taken to be a “second-generation” standard warehouse unit of the type that had been prevalent since the early 1980s. The reference to the warehouse being constructed with “all statutory and other relevant consents” included planning permission. Although second-generation warehouses were commonly used for purposes retail and not just for storage, only a planning permission for Class B8 storage and distribution use should be assumed. That accorded with the principle that a valuation should adhere as closely as possible to reality and depart from it only to the extent that the review clause required it either expressly or by necessary implication; the clause in question would work perfectly well if it were assumed that the warehouse had been constructed in accordance with a planning permission granted for Class B8 use. However, in the real world, the owner of such a warehouse would be able to apply for planning permission for Class A1 retail use. The rent review clause did not preclude the valuer from taking that matter into account, since it expressly required any restriction on the permitted use of the premises to be disregarded, and the terms of the lease permitted retail use with the landlord’s consent, which was not to be unreasonably withheld. Consequently, the prospect of obtaining planning permission for the use of the warehouse building for retail purposes could be taken into account in the valuation.
Jonathan Seitler QC (instructed by Forsters LLP) appeared for the claimant; Jonathan Gaunt QC (instructed by LG) appeared for the defendant.
Sally Dobson, barrister
