Valuation of medium term leasehold – Lack of comparables – Whether valuer negligent in failing to advise of difficulty and risk in choosing appropriate yield – Whether rental values chosen such that no reasonable valuer could have adopted them
In June 1989 the plaintiffs, who were property developers, were introduced by K, an associate partner in the defendant firm, to the property, 35 Portland Place, London W1 and the mews behind 5 Weymouth Mews. The property was in poor condition and without a planning consent for use as offices. It was held on a 46-year lease, the freeholder being the Howard de Walden Estate. The plaintiffs had no previous experience of commercial development in the West End of London and K offered to act on their behalf in connection with the proposed acquisition of the property. On June 12 1989 K sent the plaintiffs an appraisal with his advice on the property and valuing, inter alia , the rental income and the yield. He valued the rent at £60 per sq ft for office space on the ground and upper floors, £45 for residential space and £40 for the basement office space. He took the yield at a dual rate choosing percentages of 7.5 and 4, relying on advice from the defendant’s investment department and, having advised the plaintiffs on rents and yields, concluded that the value of the medium term leasehold interest in the property was £3.6m. On June 20 the plaintiffs authorised K to accept the vendor’s offer to sell the property at £3.6m. Completion took place on July 18 1989. As a result of difficulties caused by the falling property market which occurred after the purchase of the lease, the plaintiffs’ original intention to redevelop the property was modified to a refurbishment plan and in 1992 the plaintiffs brought proceedings against the defendants for negligence claiming that the defendant’s rental levels applied to the various floors at the property were wrong and that the yield of 7.5% was wrong and should have been heavily qualified. They further contended that the highest non-negligent value for the premises was £2.28m.
Held Judgment was given for the plaintiffs.
1. It was common ground that the plaintiffs had relied upon K’s appraisal advising them of the rents, the yield and the value of the property as bought. On the evidence, K had overvalued the main office areas by just under 10%, the basement by over 30% and the residential area by nearly 40%. On the areas used in his appraisal the rental values would have been reduced and the value of the leasehold with K’s yields in June 1989 would have been reduced to such an extent that the advice was negligent.
2. When valuing a medium term leasehold, the lack of comparables posed difficulties in the choice of the correct rate for the yield figures, and although the yield of 7.5% may have been too low, it would not have been negligent if accompanied by an appropriate warning, caution or qualification. However, in failing to give any warning or qualifications, the defendant had been negligent.
3. The plaintiffs were entitled to damages of £2,072,689 including interest.
Robert Akenhead QC and Mark Cannon (instructed by Russell-Cooke Potter & Chapman) appeared for the plaintiffs; Julian Matthews (instructed by Barlow Lyde & Gilbert) appeared for the defendant.
