Does an expert have exclusive jurisdiction to determine the construction of a lease in order to ascertain the open market rent, where the parties disagree on the effect of certain lease provisions on such a determination?
In the case of Ashtead Plant Hire Company Limited v Granton Central Developments Limited there was provision in a lease relating to rent review, where the reviewed rent would be the greater of the current rent and the open market rent. The definition of open market rent was relatively standard, being the best rent that the leased subjects if vacant might be expected to let, by a willing tenant and landlord with various assumptions and disregards.
In the lease there was further provision setting out that if parties did not agree the open market rent the matter should be referred to an expert.
At the rent review in 2017 (the first rent review since a variation of the lease to include rent review provisions) it was clear that there was disagreement between the landlord and tenant on what the 'leased subjects' were and how certain assumptions and disregards should be interpreted (whether buildings, other constructions and tenant's improvements should be disregarded) when calculating the open market rent.
The tenant pursuer sought declarator that the hypothetical lease should disregard the presence of the buildings, other construction and tenant's improvements.
The landlord defender maintained the contrary position and that the dispute fell within the exclusive jurisdiction of the expert.
The court heard a legal argument which was restricted to the issue of jurisdiction.
The arguments
The defender submitted that determining the proper construction of the relevant part of the lease was part of an expert's tasks and surveyors were routinely required to do so as an ordinary part of fixing the rent at a rent review. It was argued that it had been agreed in the lease that if there was no agreement about the open market rent then the expert had exclusive jurisdiction to make a determination. The action should therefore be dismissed as the court's jurisdiction was ousted.
The pursuer argued that to determine what the lease meant, the provision should be read in the context of the lease as a whole and against the background knowledge available to the parties when the lease was entered into. The pursuer emphasised that although it was for the expert to determine the open market rent, the expert did not have exclusive jurisdiction to determine disputed questions of law, such as the correct construction of the lease. The parties had agreed that the expert should carry out his functions on the basis of the correct interpretation of the provisions of the lease, not interpret the provisions themselves - the expert was a valuer, not a lawyer after all. The alternative would be that the expert would be required to interpret the provisions of the lease at each rent review, which would not have been intended by the parties. Therefore, the exclusive jurisdiction conferred upon the expert strictly related to the valuation.
Decision
The court concluded that the critical issue was whether on proper construction of the lease, the contracting parties expressly or impliedly agreed that the legal interpretation of the 'leased subjects' and of the assumptions and disregards were remitted exclusively to an expert.
The court reasoned that it was not persuaded that the parties had agreed that issues of construction were removed from the court's jurisdiction, and it would be very surprising if the parties had agreed that an expert should have exclusive jurisdiction to decide the correct legal construction of such important provisions. A surveyor could not have the necessary skill and competence to make the required adjudication, he could only obtain and rely on legal advice. If exclusive jurisdiction was conferred it would have to have been made very clear.
The court held that on a natural and common sense reading of the lease, the expert is to carry out his functions on the basis of the correct interpretation of the lease's provisions. If he fails to do that, he will have departed from his instructions in a material respect and failed to comply with the terms of reference, 'he will not merely have given the wrong answer to the right question'.
The court decided that without clear implied or express agreement to the contrary, (which the court declared would be very surprising), and on a proper construction of the lease, the parties did not confer exclusive jurisdiction upon the expert to decide as a matter of law what the 'leased subjects' are, or the legal effect of the assumptions and disregards.
Comment
This case highlights the importance of carefully considering and agreeing the terms of the rent review clause when drafting the lease to avoid uncertainty when the rent review comes around. It also underlines that courts are disinclined to accept that where experts are called on to determine matters such as a valuation, they are expected to determine legal matters like the correct interpretation of lease terms. For parties to agree that experts have exclusive jurisdiction over these kinds of matters would be very unusual as experts do not have the requisite legal knowledge to make these determinations. If this is the intention of parties, this has to be made very clear in the lease.
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