Professionals can learn much from Earl of Malmesbury v Strutt & Parker [2007] EWHC 999 (QB), in which the judge decided that Strutt & Parker had negligently advised the Earl to grant a lease of a parking lot adjacent to an airport without having reserved a turnover rent.
The court ruled that the standard of skill and care to be expected from Strutt & Parker must be assessed by reference to the skill and care to be expected of a major national firm holding itself out as being competent to advise on similar transactions. An adviser who was not fully competent to deal with a situation should have drawn on the resources of the firm as a whole and, if the firm was unable to provide the necessary expertise, it might have been necessary to draw on external resources.
The judge weighed the facts that the Earl’s land adjoined the airport and had planning permission for use as a car park against the fact that the tenant controlled vehicular access to the car park. He ruled that it would have been futile to make counter-productive threats and that Strutt & Parker would have been in breach of its duty to its client had it adopted an unrealistic position while negotiating.
However, there was nothing to be lost, and much to be gained, by negotiating for a turnover rent. Neither party was able to deal with anyone else. Consequently, Strutt & Parker should have been firm on the principle, but tentative and modest on the percentage figure. If the tenant had ceded a turnover rent of 10%, which would have cost the tenant less than any other alternative, quite large sums would have been payable to the Earl.
How were the damages for this lost opportunity to be assessed: by reference to the turnover rent that had been lost or by comparing the value of the reversion subject to leases with and without a turnover rent?
The judge ruled that a surveyor that recommends a sale at an undervalue will be liable for the difference between the price that should have been and was actually obtained. This rule also applies if a lease is granted for too small a premium and, after careful thought, the judge decided that damages were to be assessed by reference to the diminution in the value of the reversion.
Finally, the judge distinguished between the duties of care owed by the different professionals dealing with the lease. Strutt & Parker had been retained to give commercial advice. The Earl’s solicitor had been retained to provide legal advice. It was for Strutt & Parker to advise on the suitability of the type of rent and rent review clause, and the Earl’s solicitor had been entitled to assume that it had done so. Situations may arise in which lawyers ought to question commercial advice given by other professionals because it is obviously wrong, but this was not the position here.
The damages have not yet been quantified. The property industry will await confirmation of the amount payable, and news of any potential appeal, with much interest.
Allyson Colby is a property law consultant