Landlord and tenant — Arbitration Act 1979 — Challenge to award of arbitrators determining the market rent under a rent review clause of a lease of a ‘destination restaurant’ in
This was an
appeal by leave, pursuant to section 1 of the Arbitration Act 1979, against an
award by Mr David Widdicombe QC and Mr David Hyams FRICS as arbitrators under
the terms of a rent review clause in a lease of premises in Raphael Street,
Knightsbridge, London SW1. The appellants were My Kinda Town Ltd and the
respondents Castlebrook Properties Ltd.
Leolin Price
QC and J N Arbuthnot (instructed by Gouldens) appeared on behalf of the
appellants; Terence Cullen QC, and Miss Hazel Williamson (instructed by Hughes
Watton & Co) represented the respondents.
Giving
judgment, HOFFMANN J said: This is an appeal by leave pursuant to section 1 of
the Arbitration Act 1979 against an award dated September 23 1985 by Mr David
Widdicombe QC and Mr David Hyams FRICS acting as arbitrators under a rent
review clause in a lease of premises in Raphael Street, Knightsbridge, London
SW1. The lease was granted for a term of 25 1/2 years from March 25 1975 until
September 28 2000. The initial rent was £12,500 a year rising to £16,000 a year
in 1977 and with rent reviews in 1979 and at five-yearly intervals thereafter.
At the 1979 review the new rent was agreed at £24,000 a year. In 1984 the
parties were unable to agree and in accordance with clause 2(e) of the lease
the matter was referred to arbitration. The arbitrators had to determine the
market rent on January 30 1984, which clause 2(c) of the lease defined as:
the best rent
that would be expected to be obtained in the open market for the said demised
premises if let at [the relevant date] with vacant possession without a premium
by a then willing lessor on a lease for a term equivalent to the residue then
unexpired of the term granted by this lease and containing the like conditions
and provisions as are contained in this present lease.
The present
tenants took an assignment of the lease in 1981 and since February 1982 have
carried on business there as a restaurant called The Chicago Rib Shack. The
terms of the lease and applicable planning permission permit such user. Mr
Price for the tenants described the restaurant as ‘idiosyncratic’ and said that
it was the kind of restaurant which customers choose on account of its
particular food or atmosphere rather than because it was nearby or they
happened to be passing. Restaurants of the former kind were conveniently
labelled in the award as ‘destination restaurants’. The tenants’ restaurant has
been very successful.
Both parties
called valuation experts who put forward schedules of lettings claimed to be
sufficiently comparable to afford guidance in determining the market rent of
these premises. Of these, the arbitrators said that they found seven ‘helpful’.
They included one restaurant in Knightsbridge put forward by the tenants, but
also five restaurants outside the Knightsbridge area which had been put forward
by the landlords. Three of these were in the West End, one in Covent Garden and
one near Hyde Park Corner. The arbitrators justified having regard to these
restaurants by saying that, like The Chicago Rib Shack, they were ‘destination
restaurants’. They said:
We accept the
tenant’s evidence that Raphael Street is, comparatively speaking, a backwater.
However, for a destination restaurant, that is not important. The landlord’s
evidence was that it does not matter much where a destination restaurant is
located within Central London, Knightsbridge is a restaurant area, as is Covent
Garden, Piccadilly etc. Restaurant society is mobile. We think this is correct,
and thus it would not appear inappropriate to compare rents of different destination
and theme restaurants in central London, as the landlord has done, making
adjustments where necessary.
Having regard
to these comparables, the arbitrators determined the market rent of the
premises on the relevant date to have been £98,885 a year.
Mr Price
contends that the arbitrators’ reasoning involves a logical error which means
that they must have erred in law because they had come to a conclusion which
‘no person acting judicially and properly instructed as to the relevant law
could have come to’ (see Lord Radcliffe in Edwards v Bairstow
[1956] AC 14 at p 36). The error is said to lie in having regard to the fact
that the tenants’ premises have for a relatively short period been used as a
successful destination restaurant and that the comparables are successful
destination restaurants. That, says Mr Price, is to give the landlords the
benefit of the tenants’ commercial success rather than the value of the
premises as such. The premises must in accordance with clause 2(c) of the lease
be assumed to be let with vacant possession, and that entails the absence of
everything which gives the premises the attributes of a destination restaurant.
I think that
this analysis distorts the reasoning of the arbitrators, which appears to me to
rest upon two findings. The first is that the premises are marketable as
suitable for use as a destination restaurant and therefore that for the purpose
of fixing a rent the appropriate market to be considered is prospective tenants
who require premises for such a use. This seems to me no more than common
sense. The most obvious class of potential tenants to be taken into account
when evaluating the market for premises is those who would want to carry on a
business similar to that for which the premises have already been shown to be
suited. The relevance of the fact that the tenants in this case have carried on
the business of a destination restaurant upon the premises is no more than to
show that the premises could reasonably be let as suitable for such use.
The other relevant
finding by the arbitrators is that the market in the restaurant districts of
central London for premises suitable for use as destination restaurants is a
single market within which the general location of the premises (eg in Covent
Garden, the West End or Knightsbridge) does not appreciably affect the rent
which a prospective tenant would be willing to pay. Of course the specific
location of the premises (in an attractive street or an interesting building or
in a prominent position which can attract some passing trade as well as
‘destination’ customers) may affect the rent, and these factors will call for
the ‘adjustments’ to which the arbitrators refer. But the unity of the market
means that one need not treat the evidence of lettings in the West End as
irrelevant simply because they were in the West End rather than Knightsbridge.
These two
findings, that the premises are marketable as suitable for use as a destination
restaurant and that the market for such premises covers the whole of the
restaurant districts of central London are, in my judgment, findings of fact
from which there is no appeal. Given these findings, I can see no illogicality
in the arbitrators’ use of comparables. There is no inconsistency between
taking into account lettings of destination restaurants and the assumption that
the instant premises are let with vacant possession. In applying the
comparables, the arbitrators were comparing like with like, because all the
comparables were either actual lettings with vacant possession or rents fixed
at rent reviews on the hypothesis that there was a letting with vacant
possession. It follows that the award contains no error of law and that the
appeal must be dismissed.
The appeal
was dismissed with costs. Leave to appeal to the Court of Appeal was refused.
