Marklands Ltd v Virgin Retail Ltd

An arbitrator’s assessment of comparable transactions in a rent review is ordinarily a matter of valuation judgment. Different valuation methods, including overall valuation and zoning, need not produce the same result. Giving different weight to comparables does not constitute a serious irregularity or error of law merely because another approach might have been preferable.

Under section 69 of the Arbitration Act 1996, a question of law must arise out of the award. A point not dealt with in the award cannot ordinarily satisfy that requirement. In hypothetical rent negotiations, the parties remain within the transactional framework prescribed by the lease. A landlord cannot demand a premium by relying on wholly different transactions, such as subdividing the premises, when the hypothetical letting is of the property as a whole.

Virgin Retail Ltd occupied retail premises under a 25-year lease from Marklands Ltd. The lease provided for an upwards-only rent review and required valuation on an overall per-square-foot basis, while excluding evidence based on small comparables and tenant underlettings.

The appointed arbitrator assessed the reviewed rent at £425,000 per annum. The landlord challenged the award, alleging that the arbitrator had misunderstood the relationship between overall and zoning valuation, had given insufficient weight to certain comparables, and had failed to address an argument concerning the landlord’s ability to subdivide and re-let the premises. The applications concerned remission for serious irregularity under section 68 and permission to appeal on a question of law under section 69 of the Arbitration Act 1996.

1. Valuation evidence. The arbitrator was entitled to prefer evidence from open-market lettings over rent reviews and to reject or discount comparables affected by the contractual restrictions or by an unsuitable valuation approach. He had in fact considered and relied on some transactions valued by the zoning method. The evidence also showed that overall and zoning valuation did not necessarily produce the same rental figure. The arbitrator’s allocation of weight was therefore a matter of valuation judgment, not a serious irregularity or error of law (paras 14–20).
2. Question of law arising from the award. Section 69(1) of the Arbitration Act 1996 permits an appeal only on a question of law arising out of the award. Following the principle stated in Universal Petroleum Co Ltd v Handels und Transport GmbH [1987] 1 WLR 1187, a question must arise from the award itself, rather than merely from the arbitration. Since the arbitrator had not dealt with the alleged point, the statutory jurisdictional requirement was not met. The requirement in section 69(3)(a) that determination of the question would substantially affect the parties’ rights was also unsatisfied (paras 21–22).
3. Hypothetical negotiations. The hypothetical transaction had to remain within the framework fixed by the lease. The landlord could refer to other tenants willing to take the property on the prescribed terms, and the tenant could refer to other properties available on those terms. The landlord could not rely on a wholly different transaction, such as subdividing the premises, to argue that the tenant must pay a premium. That approach risked valuing a more valuable lease and expanding the factual inquiry. FR Evans (Leeds) Ltd v English Electric Co Ltd [1978] 1 EGLR 93 and Northern Electric plc v Addison [1997] 2 EGLR 111 supported that conclusion (paras 25–29).
4. The argument actually advanced before the arbitrator was that the landlord was unwilling to let the whole property without a premium. That argument was legally wrong. The more refined negotiating-tactic argument was not put to the arbitrator and therefore could not found either a section 68(2)(d) irregularity or a section 69 appeal (paras 30–32). Remission was refused and leave to appeal was refused.

The judgment arose from an arbitration concerning the 1999 rent review. No earlier court judgment in the same dispute is stated.