Freemont (Denbigh) Ltd v Knight Frank LLP [2014] EWHC 3347 (Ch)

Welcome confirmation for valuers that their reports can only be relied upon for the purpose for which they were prepared.

Although the principle has been long-established this case provides further comfort for valuers and confirms that the Court will look at the purpose of a valuation report when determining liability for alleged losses.

In this case, Freemont applied for a loan to fund the development of a site and Knight Frank were instructed to provide a valuation report. Knight Frank valued the site at £17-18.7m (depending on planning permission) and, in reliance on this report, Freemont rejected offers from developers to buy the site for approximately £11m; they considered that the figure in Knight Frank’s report represented a minimum price for the site. Ultimately, the site was not sold or redeveloped and fell into disrepair, to the extent that it was considered by Freemont as having no value. Freemont brought a claim against Knight Frank for loss of profit in respect of the offers it had rejected, or, alternatively, for loss of opportunity to sell the site, claiming that Knight Frank had negligently overvalued the site.

The Court accepted that there was a retainer between Knight Frank and Freemont and that this created a contractual duty of care, but held that the duty of care was limited to the terms of the contractual retainer which was to provide a report for secured lending purposes. The Court did not accept that there was an express or implied term in the retainer that Freemont could also rely on the report when making development plans for the site. The Court went on to find that whilst a duty of care was also owed in tort, the duty would not be greater than that owed in contract and the claim failed.

It is worth remembering that each case will turn on its facts and retainers should be carefully drafted to ensure that the purpose of the report is clear, as is the extent of the valuer’s liability.

 

Iceland Foods Ltd v Castlebrook Holdings [2014] PLSCS 95 (CC)

Useful guidance as to how the Court will exercise its discretion when determining the length of term on a 1954 Act lease renewal.

It is often assumed that the length of term for a new lease negotiated as part of a 1954 Act lease renewal will be the same as the existing lease and that there is little flexibility in this regard. Whilst this may suit landlords, tenants may prefer a shorter term to afford more flexibility. The 1954 Act is clear that the Court can determine such term for the new lease as it considers reasonable in all the circumstances and, therefore, neither party should consider that they are stuck with the existing length of the term.

In this case, Iceland occupied the premises under a lease that had been granted for a 35 year term and, part way through the term, had been assigned to Iceland. In their Section 26 Request, Iceland sought a term of 5 years, but the landlord in its counter-proposals sought a term of 15 years. Agreement could not be reached and the length of term (along with the rent) was determined by the Court. The Court considered Iceland’s arguments that market volatility and current underperformance of its stores meant that long-term lease commitments were too inflexible for its business and balanced this against Castlebrook’s argument that a 15 year term was standard in modern leases. It held that a 10 year term was reasonable in all the circumstances as this balanced the interests of the landlord and the tenant by encouraging capital expenditure, but not diminishing the value of the reversionary interest. The Judge considered that the internal policies of the parties were not a relevant factor for the Court to consider when exercising its discretion.

Whilst this case highlights the flexibility of the Courts it is a reminder that tenants and landlords must be careful to ensure that their arguments put forward during the renewal process are not based entirely on company or internal policies. For arguments to be persuasive in the negotiation stage, they need to be based on the specific market of the premises and the locality.

 

Morrell & another v Stewart & another [2015]

A buyer’s failure to obtain a survey may not be fatal to a claim against a purchaser.

Sellers will often seek to avoid providing proper replies to pre-contractual enquiries by stating that the buyer should obtain its own survey and, if it does not, it proceeds at its own risk. However, the High Court have confirmed in this case that such a stance may not be a defence to a post-purchase claim by a buyer and sellers need to be careful to ensure that replies to pre-contract enquiries are accurate.

In this case, the seller had promised the Environment Agency that prior to completion of the sale they would carry out certain works. The seller purported to carry out the works, although it became clear after completion that the works were wholly inadequate. In the replies to the pre-contract enquiries the seller confirmed that the drainage issue had been dealt with   and stated that there had been no negotiations with the local authority or neighbours about matters affecting the property. The Court held that the replies to the enquiries were contractual warranties and were untrue, even if the sellers believed that the works they had carried out had cured the problems. The Court held that the seller ought to have disclosed the historic problems so that the buyer could satisfy itself as to the current position, for example by obtaining a survey.

The Court held that although liability was excluded under the contract, the buyer still had a remedy for fraudulent misrepresentation, and the statement that there had been no negotiations with the neighbours or the Local Authority was a fraudulent misrepresentation because the buyer knew it to be untrue as it had been in contact with the Environment Agency. The Court went on to award losses based on the diminution in value of the property as a result of the drainage problems.

Given the length of standard enquiries, it is understandable that sellers will often be reluctant to provide full and complete answers, but all sellers need to be aware of the consequences of not doing so, and also the importance of full disclosure.

 

R (on the application of Newhaven Port & Properties Limited) v East Sussex County Council & another

A reminder that where use of land is regulated by statutory provisions or byelaws it cannot be “as of right” for the purposes of a Town or Village Green Application.

This case concerned an application to register a beach in Newhaven as a town or village green. The beach is part of an operational port that had been formed following the construction of a breakwater. As the port is operational there are controls in place (statutory provisions and byelaws) regulating the use of the area by the public.

It was not argued that a beach could not be a town or village green, but, instead, it was argued that the existence of the statutory provisions and byelaws meant that there was an implied licence for the public to use the land and that the use was subject to the various rules being complied with. The Court accepted there was an implied licence and, therefore, had to find that the public’s use of the land was ‘by right’ (under the licence), rather than ‘as of right’ and, accordingly, the application failed.

For more information about any of these cases or for advice on a contentious property issue please contact Michael Clark