K/S Lincoln v CB Richard Ellis Hotels Limited [2010] EWHC 1156

CB Richard Ellis acted for K/S Lincoln in providing valuations of hotels which Lincoln subsequently purchased. The hotels were leased to operators under leases which provided for rental increases to be related to turnover. However, there were also provisions relating to shortfalls in turnover which meant that the rent might not actually increase for some years. Although CBRE referred to the shortfall provisions in its valuation, its forecasts showed that rent would increase and did not take the shortfall provisions into account.  

Lincoln sued CBRE in negligence. It argued that it would not have bought the hotels had it appreciated the effect of the shortfall provision. It further argued that the yield percentages of 6.25% put forward by CBRE had been too low, leading to an overvaluation of the hotels.  

The court found for CBRE. It held that, although CBRE should have prepared the forecasts with reference to the shortfall provisions, Lincoln had not relied upon the forecasts as it had been given (and understood) separate advice relating to the effect of the shortfall provision. It had accordingly suffered no loss as a result of the forecasts. In relation to the yield, the court agreed that the yield was too low and that an accurate yield would have been 6.6%. However, what ultimately mattered was the valuation not the yield. The valuation itself was within 10% of the correct figure and was therefore within a reasonable margin of error and not negligent.