A cautionary tale for surveyors following the High Court’s decision that Strutt & Parker was negligent in valuing an airport car park lease for the Earl of Malmesbury to the tune of £18,000,000.
The Earl of Malmesbury owns a 12-acre plot of land adjoining Bournemouth airport which was built on land formerly owned his estate until it was requisitioned in the second world war for use as an airfield. The airfield fell out of use until National Express purchased the site in 1995 and planned for a significant expansion with 6 million passengers annually. Part of that expansion involved temporarily leasing the adjoining 12-acre plot for development as a parking facility. In 2001, the airport was sold to Manchester Airport Group (“MAG”) who intended to pursue the airport’s rapid expansion.
The Earl of Malmesbury instructed Strutt & Parker to advise and negotiate a lease for the parking facility on his behalf with MAG. It was clear that a failure to negotiate a lease on the land would have severely hampered MAG’s proposed expansion. However, Strutt & Parker accepted MAG’s proposal for a 24 year lease on the 12 acre site with a base rent of £9,000 per annum, with rent reviews every fifth year linked to the cost of a car park season ticket. At the time the lease was signed, MAG was receiving approximately £400,000 in annual receipts from the parking facility. There was also the future potential for significant rent increases due to the proposed airport expansion.
The Earl claimed that Strutt & Parker had been negligent in agreeing rent for the car park that was not linked to income derived by MAG at the facility. Further that they should have negotiated a lease with rent calculated at 80% of the car park’s profits. He also claimed that damages should be assessed as the difference between the likely future earnings that would have been obtained if the rent had been linked to income and the rent that would be obtained using the agreed formulae based on the price of a season ticket.
The judge found that Strutt & Parker had been negligent in agreeing a rent that was not linked to the car park’s earnings. However he found that the Earl’s claim for rent amounting to 80% of the facility’s profits was “wholly unrealistic” and trimmed this to 20%.
Importantly, the judge disagreed with the Earl’s basis of calculating damage which he claimed should include the future earnings potential of the facility and applied the usual test of diminution in value of the land at the date of breach. However, the judge indicated that he might be persuaded to grant permission for appeal on the calculation of damages.
The original claim was for some £100m and although the award was just under a fifth of that figure, what is clear is that the potential ramifications for surveyors and their PI insurers if things do go wrong is significant. Further, the basis of calculating damage is potentially the subject of an appeal. Whatever amount Strutt & Parker is ultimately ordered to pay, this will necessarily be an opportunity for surveying insureds to consider the amount of PI cover they purchase and for their PI insurers to evaluate the cost of that insurance.