Lawbite: the value of a good expert

• United Kingdom

• Real estate
• Real estate dispute resolution

01-06-2016

Flanders Community Centre Ltd v Newham London Borough Council (2016) EWHC 1089 (CH)

The tenant, Flanders, secured a new rent of £1 per annum in its application for a new tenancy pursuant to the Landlord and Tenant Act 1954 (“1954 Act”). 

The landlord, Newham, had sought to justify a new rent of £16,000 per annum and filed expert evidence to support its claim. The Judge, however, found both Newham and Flanders’ expert evidence unreliable and rejected the comparables presented to it.  Her main criticism was that the reports took irrelevances into account and/ or failed to set out terms of the comparable leases such that they could not be compared with the subject lease.  Without these comparable terms it could not be ascertained whether they contained unusual or uncommercial terms and the significance of any points of difference could not be valued. 

Deciding that she did not have reliable evidence before her as to current market rent she instead relied on the passing rent, which both parties accepted was relevant, and ordered a rent of £1 per annum.

One of Newham’s grounds of appeal was that the Judge had wrongly rejected comparable evidence.  Newham suggested that she should have either discounted the comparable rent to reflect any weaknesses she saw in them or ordered a new trial.  On this, and all other points raised in appeal, the High Court upheld the Court’s decision.  Where the Judge found the expert valuation evidence to be unsatisfactory she could have conducted her own analysis but she was not wrong in law to give weight to passing rent rather than carrying out that exercise. It was for her to weigh the significance of passing rent.

Key points

• The case illustrates the Court’s discretion when determining the open market rent pursuant to s34 of the 1954 Act. 

• Remember, whilst passing rent can be relevant valuation evidence of the market rent of the premises in question, it is not necessarily the starting point.  This is clear from the fact that the valuation formula in s34 of the 1954 Act requires the Court to have regard to the terms of the existing tenancy other than those terms relating to rent.  It is not therefore just a case of one party having the burden of trying to justify a deviation from the current rent.  Rather, in deciding upon the new rent the Court must make an objective assessment based on expert evidence which may include the passing rent.    

• A reminder of the importance of compelling expert evidence.  If a party gets it wrong there is no guarantee of getting a second chance. 

• Where valuation is in issue details of the terms of any comparable leases must be included in the evidence.  Any significant points of difference between the comparable leases and subject lease should be identified and valued. Where these terms cannot be accessed the expert may wish to consider whether he or she can express this weakness in the evidence by way of a discount.