Roger Pearson looks at a case that has not quite rocked the property world, but has provided pointers towards determining rents.
Mr justice Neuberger recently rejected a £2m claim in the Chancery Division against valuation expert Peter Morgan for allegedly negligently undervaluing a major store unit in the Lewisham Centre. Had the decision gone the other way in the case of Lewisham Investment Partnership and Riverdale Centre (Three) v Peter Leonard Wilton Morgan, it would have shaken the property law world.
Although the claim was rejected, Jennifer Rickard, a property litigation partner at Nabarro Nathanson, says she considers that the pointers given by the judge about the way he would have carried out such a valuation, particularly whether or not to take into account the possibility of subletting, resulted in a "moral victory" for her clients.
The judge made it clear that, had he been conducting the valuation at the centre of the row, he would have used the method favoured by Rickard's clients and not that used by Morgan. It is claimed their method would have resulted in a considerably higher rent review figure being achieved.
Lewisham and Riverdale initially let a unit to Marks & Spencer in 1972 for just under 100 years, with provision in the underlease for rent reviews every 21 years. In 1993, a reviewed rent of £900,000 a year was proposed, but agreement could not be reached and, under the terms of the lease, Morgan was appointed to decide the new rent.
Lewisham and Riverdale experts said the market rent should be £835,000. Marks & Spencer experts argued it should be £212,000. Morgan decided it should be £250,000.
Morgan was then sued for £2m which, it was claimed, the £250,000 a year rent could cost the landlords in lost revenue until the next rent review.
Rickard says: "If the case had been successful it would have been the first time an expert in a rent review determination had been successfully sued for negligence a very significant decision."
Dismissing the negligence allegations, the judge said that although he would have used the different valuation method resulting in a higher figure, he did not consider the £250,000 was "lower than that which any reasonably competent and careful surveyor could have reached".
Morgan had relied on Iceland Frozen Foods v Starlight Investments, which he interpreted as precluding him from taking into account the ability to sublet. The judge considered the Iceland case so detached from reality as to not be binding, but could not criticise Morgan for relying on it.
But as Jennifer Rickard points out: "The judge's views in respect of the methods to be used and how the ability to sublet must be taken into account should be taken on board. They go a good way toward clarifying the approach to be adopted in valuations such as these."
The 'overall' valuation method in which rent for a single square foot is assessed and applied to the overall square footage of the premises is normally used for smaller premises. The 'zoning' method, where the property is broken down into zones with different rentals applied to each, is normally applied to larger premises.
Morgan used the overall method, but the judge said: "If it were for me to decide how to assess the market rent of the unit, I would have thought it right to give more weight to the zoning method."
He said the zoning method would have resulted in a figure of £400,000, but added that while there was disparity, Morgan had been entitled to use the method, especially due to his reliance on Iceland. In the circumstances he was entitled to reach his figure.
"Obviously we were disappointed the claim was dismissed," says Rickard. "It has emphasised how difficult it is to sue an expert in these circumstances. Even where the judge agrees with you over the method of valuation, if he considers any other competent surveyor could have dealt with the matter in the same way, the negligence claim fails."