Independent expert — Valuation for rent review — Submissions made by parties’ surveyors — Considerable reliance placed on those submissions — Whether goodwill properly disregarded — Whether comparable properly rejected as irrelevant — Whether expert should have sought further comparables — Whether proper rent attributable to first-floor maisonette — Principles of valuation reviewed — Comments on decapitalising premiums
The plaintiff company is the owner of 107 The Broadway, Mill Hill, London NW7, let under a 25-year lease to B C Wall Ltd. The premises consist of a lockup shop occupied by the tenant and a maisonette above sublet at a regulated rent of £1,508. The lease contains rent reviews every five years; in 1980 the rent was reviewed to £3,850. Under the rent review provisions, the defendant, Ian Leslie Aarons BSc FRICS, was appointed by the president of the Royal Institution of Chartered Surveyors as an independent expert to determine the rent at December 25, 1985. The independent expert was required to invite submissions from the parties, which he was to take into account but was not to be bound by them; he was to act as expert and not as arbitrator. The review rent was defined as an open market rent of the premises with vacant possession on the terms of a lease the same as the actual lease (save as to rent and user); there were certain disregards, such as any effect on the rent of goodwill attributable to the tenant.
Mr G T Ward, of Sweby Cowan, and Mr R E Roberts put comparables and valuations before the expert on behalf of the plaintiff landlords and the tenant respectively. The defendant determined the review rent at £6,600; this figure was based, in the main, on a zone A rent of £14 per sq ft and a rent of £1,000 for the maisonette. The plaintiffs believed this figure was far too low and claimed damages for negligence against the defendant. Evidence was given on behalf of the plaintiffs by Mr Eric Shapiro BSc FRICS and on behalf of the defendant by Mr I C Hayward FRICS.
Held The principles of valuation relating to the premises in question include the following: it is the practice of valuers to value shops in terms of 20-ft zones; valuation entails an exercise of judgment and is not an exact science; where the object is to determine the open market rent, the decision of the market is the best evidence and a rent review negotiated between valuers is only second best; the effect of goodwill enhancing the rent must be allowed for; and the poor position of the shop must be taken into account.
When the defendant considered the valuations submitted to him by the parties’ surveyors, he found some flaws in Mr Roberts’ valuation: a misunderstanding of the assumptions in the lease and that his comparables were all rent reviews, and of the ten of value, he had acted in eight himself. But he found greater objections to the valuation of Mr Ward for the landlords who had put forward two comparables, nos 109 and 113 in the same street and let at open market rents; 109 was let in November 1985 at a zone A rent of £16.06 per sq ft plus a premium of £9,000 which he had decapitalised to give a total rent of £21.48. The defendant and Messrs Shapiro and Hayward agreed that the approach to the premium had been wrong: it was uncertain to what extent it represented some goodwill (the shop was let to a florist following a similar use) and the choice of the interest rate was subjective. Similar objections were made to the decapitalisation of the premium of £17,500 paid on the grant of a lease of no 113, the evidence of which the defendant had disregarded as it was a catering rental and not comparable.
The defendant was found to be truthful and his factual evidence could be accepted. Mr Hayward was a well-qualified and impressive witness. Mr Shapiro was also well qualified and experienced, and his opinion was eloquent, but he sometimes descended into the arena of arguing the plaintiffs’ case. Mr Shapiro had acted for the plaintiffs before and was therefore not entirely objective. Where there were differences, the evidence of Mr Hayward was to be preferred.
On the evidence, the defendant came to the right conclusion that the rent of no 109, put in evidence on behalf of the landlord, probably included an element of goodwill. There was a limit to the inquiries that a reasonable surveyor would make to find out the information necessary to deal with the element of goodwill reliably. The defendant was also justified in taking a cautious view of no 113 because it involved a catering rental. Although the two comparables put in on behalf of the landlord were found to be unreliable by the defendant, he was under no obligation to seek out further comparables himself and was entitled to make use of those submitted on behalf of the tenant.
The defendant was also entitled to attribute the rent of £1,000 to the maisonette by deducting £500 from the regulated rent to allow for landlord’s expenses on repair, insurance and management. A reasonable surveyor would not always allow for the two-yearly review of a regulated rent or the fact that the tenant might let the maisonette on a “company let” outside the Rent Act 1977. It was permissible for the defendant to make a rough and ready calculation of the net rent. The claim for damages for negligence was dismissed.
Belvedere Motors Ltd v King
1981 260 EG 813 adopted.
Romie Tager (instructed by Wallace & Partners) appeared for the plaintiffs; and Nicholas Dowding (instructed by Herbert Smith) appeared for the defendant.
