Beegas Nominees Ltd v Decco Ltd

In construing a rent review clause, the court ordinarily assumes that the premises are valued as they actually exist, unless the lease clearly alters that approach. The parties may, however, agree express assumptions which depart from reality and normal valuation practice. Where a clause requires comparable premises to be treated as if situated at the subject premises, the valuer must disregard their actual geographical location and make no deduction because they are in a more advantageous market. The valuation remains an evaluative exercise. The valuer must determine the best rent obtainable under the contractual assumptions, rather than mechanically selecting a figure without considering other relevant differences.

The claimant, trustee of the Lattice Group Pension Scheme, sought under section 45 of the Arbitration Act 1996 the determination of a question of construction arising in a rent review arbitration. The lease concerned a distribution warehouse and ancillary offices at Stone Business Park. Clause 3.2(6) required rental evidence from qualifying premises in or near Tamworth or Minworth to be treated as evidence of the market rental value as if those premises were situated at Stone.

The issue was whether the arbitrator could adjust comparable rents downwards to reflect the different and more advantageous locations of the Tamworth and Minworth premises.

1. Application determined. The court answered the question of law in favour of the claimant, in terms of alternative (a), and made a declaration.
2. The usual presumption in a rent review is that the subject premises are valued on the basis of what they actually are, and that comparable evidence is adjusted for relevant differences. That presumption applies unless the lease, expressly or by necessary implication, requires a different valuation basis. The approach in Basingstoke and Deane Borough Council v Host Group Ltd [1988] 1 WLR 348 supported that conclusion.
3. Clause 3.2(6) was not merely a direction to consider evidence from Tamworth and Minworth. The concluding words, requiring the premises to be treated as if situated at Stone Business Park, had a specific purpose. They required the arbitrator to disregard the actual location of the comparable premises and prohibited a downward adjustment based solely on their being in Tamworth or Minworth.
4. The clause reflected an intelligible commercial objective: to secure rent comparable with established distribution centres while Stone Business Park remained less developed. The court therefore accepted that the clause expressly departed from reality and normal valuation practice, notwithstanding that the resulting rent might exceed the market rent actually obtainable at Stone.
5. The valuation was not necessarily reduced to a wholly mechanical exercise. The arbitrator could still assess differences such as size, age, condition, structure and lease terms, and decide whether the highest rental value or another value represented the best rent under the contractual assumptions. The reasoning in Dukeminster (Ebbgate House One) Ltd v Somerfield Properties Co Ltd [1997] 2 EGLR 125 did not require a different construction.
6. The court also confined the use of background material in construing the lease. Under Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, reasonably available background may be considered, but a landlord-only report and the parties’ previous negotiations or subjective intentions were not admissible to alter the ordinary construction of an apparently error-free commercial agreement.

Not an appeal. The judgment itself does not state any prior appellate decision.