Rent review determination is unpleasant viewing for Cine-UK Limited

A case involving an independent surveyor’s decision in determining the rent review of the Cineworld Cinema at Union Square Shopping Centre, Aberdeen, was recently considered in the Outer House of the Court of Session.

Background

The pursuers, Cine-UK Ltd, are the tenants of the multiplex cinema located in Union Square Shopping Centre. The defenders, Union Square Developments Limited, are the landlords of this premises.

The lease provided for rent reviews every five years. At the most recent rent review, the parties were unable to agree upon a revised rent. Therefore, in accordance with clause 4.2 of part 4 of the Lease, the revised rent was to be calculated by an independent surveyor. The determination of the independent surveyor was, in terms of the Lease, to be “final and binding on the parties… both on fact and law”.

The surveyor determined that the revised annual rent was to be £755,375. The tenant had contended for a revised annual rent of £563,750; the landlord’s figure was £834,000.

The tenant challenged the surveyor’s determination on the basis that she had erred in law.

Challenges to the Pursuer's Argument

The landlord argued that the surveyor’s approach was correct:

  • The landlord argued that the tenant’s challenge was incompetent as the court had no jurisdiction. The surveyor’s decision was issued in her capacity as an expert under the Lease and was to be regarded as “final and binding on the parties…both on fact and law.” The court could not therefore entertain the pursuers’ claim.
  • The landlord disputed the tenant’s argument that the surveyor had erred in law. This was not a valid interpretation of the terms of the Lease.
  • The landlord argued that the orders sought by the tenant were too vague to be granted by the court. This was evidenced by the fact that the tenant had substituted new conclusions just before the legal debate commenced.
Decision of the Court

The court preferred the landlord’s argument. The parties to the Lease had intended the decision of the independent surveyor to be final and binding. The rationale and the underlying provisions conferring finality on decisions of experts, as recognised by the case law, was accepted.

Lady Wolffe noted that the parties’ intention for the finality of the surveyor’s determination was reinforced by two features present in the Lease.

Firstly, there was no requirement for the independent surveyor to provide reasons for his or her determination. One important function of a provision requiring the independent surveyor to provide reasons for their decision is to enable parties to consider whether there has been an error of law in that decision. Any argument for the surveyor to give reasons falls away if parties agree, as they had in this case, that the decision is final and cannot be appealed.

Secondly, the terms in which certain disputes should be determined by an independent surveyor are not defined or limited so as to allow for a legal challenge. In other words, if the parties had wanted to retain the ability to challenge a determination based on an error of law in certain sorts of disputes, they could have distinguished those forms of disputes from others in which the determination was to be final and binding. No such distinction was made and, accordingly, the surveyor’s decision is final and binding in this instance.

Conclusion

Expert determination is an effective mode of dispute resolution which is used in a wide range of contracts. The speed, cost-effectiveness, and informality of an expert determination makes it an attractive process for commercial parties. Difficulties do however arise on the basis that there is no mechanism to challenge an expert’s determination; if the contract provides that that determination is “final and binding”, it will indeed be final and binding. The aggrieved party’s only recourse would be against the expert if the expert could be said to be negligent in any way.

MacRoberts can advise on all aspects of commercial dispute resolution, including provision of expert determination. Please contact us for further details.

This article was co-authored by Ryan McLaughlin.

Real Estate

Our expert team has not only the specialist legal knowledge required to assist our clients, but also sector experience and practical know-how acquired through years of working in Real Estate, on a wide variety of high profile projects.

Latest updates from @MacRoberts