Kilmartin SCI (Hulton House) Ltd v Safeway Stores [2006] EWHC 60 (Ch)

Case No HC04 C 03769[2006] EWHC 60 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 27/01/2006
Before
THE HONOURABLE MR JUSTICE WARREN
Between
KILMARTIN SCI (HULTON HOUSE) LTDClaimantSAFEWAY STORESDefendant
Nicholas Dowding QC and Christoher Stoner (instructed by Messrs Eversheds) for ClaimantJohn McGhee QC and Michael Pryor (instructed by Messrs Clifford Chance) for DefendantHearing Hearing dates: 11th, 12th, 13th, & 16th January 2005
Judgment

Introduction

[1]This is a claim for specific performance of an agreement for a lease dated 31 January 2002 (“the Agreement”) made between the Claimant (“Kilmartin”) as proposed landlord and the Defendant (“Safeway”) as proposed tenant. The relevant property (“the Premises”) comprises the basement and ground floor of Hulton House, 165 Fleet Street, London which were to be leased for the operation by Safeway of a small city-centre supermarket or convenience store. A premium of £1 million was to be paid for the proposed lease, which was for a term of 25 years at an initial rent of £600,000 pa subject to review. The provision of this retail space by Kilmartin was part of a major refurbishment of the building, the upper floors (with which I am not concerned) consisting of office space.[2]Following the acquisition of Safeway by Morrisons plc in March 2004, a reassessment of Safeway’s needs led to the commercial decision that the Premises were not required. Safeway accordingly considered whether it was bound to continue with the acquisition or whether the terms of the Agreement entitled it to walk away. The Agreement provided that the Premises should be of a specified minimum Net Internal Area (“NIA”); if that was not achieved, Safeway would have the option to terminate the Agreement. In this context, NIA is to be ascertained in accordance with the Fifth Edition of the RICS Code of Measuring Practice (“the Code”). Safeway contends that that minimum area was not achieved; if that is correct, it is common ground that Safeway is not bound. Kilmartin contend that the NIA was in excess of the minimum and is accordingly entitled to specific performance of the Agreement.

Events leading up to the Agreement

[3]The Agreement was entered into after negotiations that took place in the last two weeks of January 2002. Kilmartin had been negotiating with Sainsbury’s with whom heads of terms had either been agreed or were close to agreement by about 22 January 2002. Safeway was keen to achieve a presence in the area and, in the short period of two weeksat the end of January, managed to beat Sainsbury’s bid.[4]There are a number of provisions of the Agreement to which I need to refer.[5]Clause 1 contains definitions. I refer to the following:a. “Anticipated Net Internal Area”: in relation to the Basement Area 1020 square metres and in relation to the Ground Floor 890 square metres, a total of 1910 square metres. This was the area which Kilmartin’s architects anticipated being the area of the completed shell. In fact, this figure may have been based on an incorrect application of the NIA approach. However, nothing turns on this in relation to the question of construction which I need to decide.b. “Certificate of Practical Completion”: a certificate of practical completion of the Works issued by the Architect pursuant to the Building Contract (ie the contract between Kilmartin and a contractor in relation to the Works).c. “Condition”: the grant of Satisfactory Planning Permission.d. “Material Variations”: any variation, alteration or addition to the Works which has any of a number of consequences including one which “materially reduces the Anticipated Net Internal Area”.e. “Minimum Area”: a net internal area which is less than 1852.7 square metres. It is agreed that the reference to net internal area is to Net Internal Area as defined. The figure of 1852.7 is 97% of 1910. This reflects the Agreement reached in negotiations that Safeway would be entitled to terminate the agreement if the area of useable space provided was more than 3% less than 1910 square metres.f. “Net Internal Area”: the net internal area of the Premises (the Basement and Ground Floor as described in the Lease (in the form set out in the Agreement) “measured in accordance with the Fifth Edition of the RICS Code of Measuring Practice”.g. “Onerous Conditions”: any one of a number of conditions including one which “limits the Net Internal Area of the Premises to less than the Minimum Area”.h. “Satisfactory Planning Permission”: a Planning Permission (ie for the Works) which does not contain (among other matters) any Onerous Condition.i. “Tenant’s Works”: the works to be carried out by the Tenant under Clause 9.j. “Specification”: the plans detail drawings schedules and other documents detailing the Works annexed to the Agreement as Annexure 5.k. “Works”: this includes(i) the works to be carried out by Kilmartin to the shell of the premises(ii) the internal works and ducting to enable Safeway to carry out its fitting out works and(iii) any other works referred to in the Specification.[6]Clause 3: Kilmartin was to grant and Safeway was to accept a lease of the ground floor and basement for 25 years at a premium of £1m and a rent of £600,000 pa (subject to review) in the form of the draft lease attached to the Agreement as Annexure 2.[7]Clauses 3 and 4.2: The obligation to grant the lease and most of the remaining provisions of the Agreement were conditional upon the Satisfaction Date occurring prior to 1 February 2003. The Satisfaction Date was 2 Working Days after either satisfaction or waiver of the Condition. The Condition was the grant of a Satisfactory Planning Permission.[8]Clauses 4.4.4 and 4.4.5: Kilmartin agreed to use all reasonable endeavours to obtain a Satisfactory Planning Permission as soon as reasonably practicable after the date of the Agreement and to take account of Safeway’s reasonable representations. Clause 4.4.6: Any dispute as to whether a Satisfactory Planning Permission had been granted was to be determined by a solicitor acting as an expert. Planning permission was obtained on 16 October 2002; Safeway accepted it as a Satisfactory Planning Permission containing no Onerous Conditions on 12 November 2002.[9]Clause 5.2: Following the Satisfaction Date Kilmartin was to use all reasonable endeavours to agree the Building Contract no later than 25 days after that date.[10]Clause 6.1.3: Kilmartin was to procure commencement of the Works on the Start Date (the later of 31 October 2002 or 20 Working Days from the Satisfaction Date). Clause 6.1.5; Kilmartin was (subject to any Permitted Extension) to procure completion of the Works by 31 March 2004.[11]Clause 6.1.9: Kilmartin was to ensure that its architect submitted to Safeway a statement showing its computation of NIA not less than 5 Working Days before the date on which its architect anticipated that the Certificate of Practical Completion would be issued.[12]Clause 6.2.2: Kilmartin was not to make any variation without the consent of Safeway (consent not to be unreasonably withheld) and was not to make any Material Variation without the prior written consent of Safeway (there being no proviso about consent not being unreasonably withheld).[13]Clause 6.4.3.1: As soon as practicable but in any event within 5 working days of the issue of the Certificate of Practical Completion, Kilmartin was to procure that its architect and Safeway’s representative should attempt to agree the Net Internal Area.[14]Clause 6.4.3.4 and 6.4.3.5: Any dispute as to the Net Internal Area was to be resolved by an Independent Measuring Surveyor acting as an expert.[15]Clauses 8.1 and 8.9: The lease was to be completed, and the premium paid, on the Completion Date (which was the Working Day 5 Working Days after the issue of the Certificate of Practical Completion).[16]Clause 9.1: The tenant was entitled to carry out the Tenant’s Works once the premises had reached the point where such works could be carried out without interfering with the execution of the Works or any works on the remainder of the building. Apart from the definition of Tenant’s Works referring to Clause 9, Clause 9 is headed “Tenant’s Fitting Out Works and Tenant’s Works” suggesting that there may be a difference between the two. There is no definition of Tenant’s Works other than that set out above which simply refers to Clause 9 and there is no separate definition of Tenant’s Fitting Out Works at all, although Clause 9 does make reference to fitting out works. However, as will be seen, the Specification does make reference to fitting out works.[17]Clause 15.1: Safeway was entitled to terminate the Agreement if (among other things) the Net Internal Area was less than the Minimum Area (clause 15.1.5). Clause 15.4: Prior to doing so Safeway was to serve an Intended Termination Notice and was only entitled to terminate the Agreement in the event of no Step In Notice being served.[18]Under the Lease, the Permitted Use was any use permitted by Class A1 Town and Country Planning (Use Classes) Order 1987 (effectively retail shops) and as ancillary to such use any use ancillary to the use of the Premises as a supermarket.[19]The specification at Annexure 5 to the Agreement is a document which started out as Safeway’s standard form specification for the construction of new stores. It was heavily amended in manuscript by Mr Ince of Hancock Ward, Safeway’s architects, and sent to Mr Pendlebury of Hamilton Associates, Kilmartin’s architects, on 29 January 2002. It was then further amended by Mr Hargreaves (of Kilmartin) or Mr Pendlebury with the concurrence of Mr Ince in the course of a meeting on 30 January 2002. The result of this exercise was defined as “the Specification” in the Agreement.[20]Section 1 of the Specification is headed “Preambles” although it goes rather further than any normal understanding of preamble. In particular, within section 1.07, headed “Occupation Dates”, subsection 1.07.2(A) envisaged Safeway being provided with “a completed shell structure, secure and weathertight including all internal walls, mezzanine floors, staircases and all external windows, shopfronts and doors….”.[21]Section 1.09, headed “Fit Out Contract” provided, at sub-section 1.09.1 that “The Shell and External Work Contract shall include all the necessary works that are not in the Fitting Out Contract. The Fit Out Contract comprises the following:”. There then follow a number of items including (at sub-section 1.09.4) “All floor finishes including terrazzo tiling, ceramic tiling, screeds, refrigeration duct covers, and vinyl coverings”. Sub-section 1.09.14 was deleted: it would have provided “Lift installation, if required, including cars, motors, doors and all necessary control panels and running gear. (The lift guides insert installation is in the main shell contract)”.[22]Section 2 is headed “Shell Design Criteria.” Sub-sections 2.02.1.2 and 2.02.1.3 deal respectively with a disabled lift and a goods lift. Where Safeway agree that staff and office accommodation will be at a level other than sales area level, then a disabled lift will be installed. Where Safeway agree that storage and/or goods handling accommodation will be at a level other than at sales area level, then a goods lift will be installed. In each case, all shafts and adjacent motor room, pits and structures shall be incorporated within the shell contract. It is provided thus:
“The mechanical installation together with car by a mutually agreed manufacturer will be included in Fit-Out Contract (unless the shell is being constructed by a Developer when lift provided by same)”
. The drafting of this last provision is not, perhaps, as clear as it might be. But the effect is agreed to be that Kilmartin is obliged, within the shell contract price, to provide both a goods lift and a disabled lift if Safeway requires them. That result is consistent with the deletion of sub-section 1.09.14 from the standard form. In the event, Safeway did require both lifts to be installed, and that was done as part of the shell contract.[23]I should record one difference between these two lifts since it is a factor relied on by Safeway. A goods lift was shown on the preparatory plans prepared by Hamilton Associates for Kilmartin but a disabled lift was not, although even the goods lift as actually built was not in precisely the location, nor of precisely the dimensions indicated on those plans. Those plans were produced prior to the commencement of the negotiations with Safeway.[24]Sub-section 2.02.3 is headed “Storey Heights”: heights were to be provided for the ground floor (minimum 3650mm) and for the basement (ranges from 2550 to 2750 mm). Safeway rely on the reference to “Ground Sales Area” to show that it had already been decided by the date of the Agreement that the sales area would be on the ground floor (and thus that the installation of the goods lift would be inevitable). Kilmartin submit that the reference to Ground Sales Area was simply to distinguish it from the basement, the ground floor height requirement being higher. Similarly, reliance is placed on the reference in sub-section 2.02.1 to provision for a safe or safes in the Cash Office in the basement to show that there would be staff offices in the basement (and thus that the installation of the disabled lift would be inevitable). For reasons which appear later, I do not need to resolve precisely when Safeway decided that the sales floor would be on the ground floor with storage and offices in the basement[25]The Works began on 30 September 2002. Works progressed with Safeway being consulted in accordance with the Agreement at all stages. The Works included installation of both a goods lift and a disabled lift. In early 2004 Safeway changed its mind regarding the Premises and wanted to dispose of them or to get out of the Agreement.[26]In the meantime, the Works continued. In anticipation of practical completion, Kilmartin and Hamilton Associates were considering the need to ascertain the NIA for the purposes of the Agreement. On 11 June 2004, Mr Pendlebury, on behalf of Kilmartin, instructed Plowman Craven Associates (“PCA”) to measure the premises. Although PCA are recognised in the property industry as one of the leading experts in the field of area measurement, I will address later the expert evidence given to me by Mr Andrew Molloy of that firm. PCA determined that the NIA of the premises was 1,871.5 square metres. They included (among other things) the area occupied by the goods lift and the disabled lift. PCA subsequently accepted that they ought to have excluded the area under the gas meter (0.4 square metres) and revised their figure to 1,871.1 square metres.[27]On 5 July 2004, Mr Pendlebury formally notified Safeway in accordance with the Agreement that the Anticipated Date (for practical completion) was 12 July 2004 and of Kilmartin’s computation of the NIA in accordance with the measurements undertaken by PCA (a copy of which was enclosed), informing them that the NIA was 1871 square metres.[28]Practical completion took place on 12 July 2004. A copy of the Certificate of Practical Completion was sent to Safeway’s architects on 15 July 2004. On the same day, Safeway’s solicitors, Clifford Chance, notified Kilmartin’s solicitors, Eversheds, that for the purposes of the Agreement the appointed Tenant’s Representative was Mr Simon Montgomery of Rapleys.[29]On 20 July 2004 Clifford Chance sent to Eversheds by post and by fax an Intended Termination Notice ie a notice of its intention to serve a notice under Clause 15.1.5 terminating the Agreement on the ground that the NIA was less than the Minimum Area. The following day a meeting between the parties took place at the premises. Mr Montgomery stated that Safeway disputed the methodology of the areas included within PCA’s NIA figure and gave a list of the items which he contended should not have been included. This was the first time that Kilmartin had been made aware that there might be a dispute over whether or not the Minimum Area had been achieved.[30]On 5 August 2004 Clifford Chance served a termination notice under clause 15.5.15. These proceedings were issued in November 2004.

The Disputed Areas, the Code, the Expert evidence

[31]There are five disputed areas. I shall describe them briefly before turning to the Code, the significance of which can really only be understood against the background of the dispute. I will then consider the expert evidence and its impact on the meaning of the Code, before returning to a more detailed consideration of the disputed areas, with the assistance of that evidence, to see, whether as a matter of construction of the Agreement, they are included within NIA, a question of construction which has to be decided in the light of the provisions of the Code. As well as some very helpful photographs of some of the disputed areas, I have visited the site and inspected each of the five areas. That inspection turns out to have been very helpful indeed. My inspection forms an essential part of the evidence and enables me to assess the evidence of the experts from as an informed position as possible.

The Disputed Areas

[32]The five areas of dispute:a. The areas taken up by the goods lift, the disabled lift and the permanent (but not the notional) lift lobby associated with the ground floor of the disabled lift. Both the lifts run between the ground floor and the basement. The goods lift occupies a total area on both floors of 18.7 square metres. The disabled lift (including the lobby) occupies a total area of 9.6 square metres.b. An area either forming part of the delivery area, or immediately adjoining it, on the ground floor through which a fire escape route runs. I shall call it the Adjoining Area. This area is rectangular, measuring about 8.6 square metres. It is in excess of 2 metres wide. It forms part of the connection between the main delivery area (of which it may be said actually to form part – a question I will look at further later) and the remainder of the ground floor area. It is at a slightly higher level that the main delivery area: I do not know the precise height difference, but it is an easy step up or down. The Adjoining Area is open at the main delivery area end; but completely free access into that area is obstructed by a column in the corner of the Adjoining Area itself. At the other end of the area is a large aperture into the main part of the ground floor, large enough for quite bulky items to be manhandled through.c. A sloping area at the front of the ground floor. I shall call this “the Front Sloping Area”. This is a long and narrow strip, some 8.34 metres long, which runs parallel to the shop front and which slopes down from the level of the main floor to the front wall. It comprises about 10 square metres (Mr Osmond, Safeway’s expert, says 9.9, Mr Molloy, Kilmartin’s expert, says 10.2). The depth of the strip (from the front wall under the shopfront window to the line where the floor becomes horizontal varies from 1.14 metres to 1.31 metres and the fall varies from (according to Mr Osmond) 0.28 metres to 0.20 metres or a gradient of between 1:6.7 and 1:4. Like the main floor to which it rises, this sloping area is an unfinished concrete area.d. A ramp at the rear of the basement close to the plant room. I shall refer to it as the Basement Ramp. This comprises a sloping area running from the floor level up to the rear wall. It was formerly a vehicular access route when the basement was used as a car park. On the right hand side, as one looks up this area, is a flat floor area which is accessed by some metal stairs next to the Basement Ramp. The area of the Basement Ramp is about 16.6 square metres. The length of the Basement Ramp is about 7 metres and its rise is 0.8 metres, a gradient in excess of 1:9. Like the remainder of the basement, it is a concrete area. The Basement Area is the limit of the demise: it would not be possible for Safeway to level the area by digging it out to the floor level of the adjoining main floor area.e. Two adjoining flat areas referred to as plinths towards the front of the basement. I shall refer to them as the Front Plinths. It is not, to my mind at least, clear precisely what a “plinth” is. The word has a number of common meanings, for instance the lower member of the base of a column, the projecting part of a wall immediately above ground, a base supporting a statue or vase. I use the word plinth only because this is what the parties have done, although whether it is a plinth within any of those ordinary meanings is open to doubt. The Front Plinths are in the corner of the basement abutting Fleet Street and St Dunstan’s Court. They have an area of about 21.8 square metres. They comprise of three components with dimensions as follows: Depth Height Area Lower component 1.5m 0.32m 7.6m 2 Middle component 1.5m 0.58m 13.8m 2 Upper component 0.4m 0.71m 0.4m 2 Total 21.8 m 2 The upper component, a small square area sitting on top of the middle component, is agreed to be excluded from NIA. The Code[33]It is important to note at the outset that the Code is a measuring code and not a valuation code. The fact that an area is not included in NIA does not mean that it has no value and, therefore, is not to be taken account of in, for instance, a rent review.[34]The purpose of the Code is stated to be “to provide succinct, precise, definitions to permit the accurate measurement of buildings…..on a common and consistent basis”. So far as RICS members are concerned, the Code is not mandatory but is a code of quality practice. Those preparing the Code (the Property Measurement Group) have not attempted to define everyday words and phrases. To do so would go beyond the purpose of the Code which states “The Group is of the view that most weight should be given to the commonsense interpretation, and less weight to reliance on semantics, when interpreting the meaning of the Code”. I do not, therefore, perceive it as my function, in construing the Agreement and its incorporation of the definition of NIA, to examine the Code and its construction as though it were a tightly drawn family settlement or commercial document. Indeed, as both experts agree, the interpretation of NIA can often give rise to matters of pure judgment in deciding whether a particular area falls within the definition or not.[35]There is, as the Code explains, a hierarchy of definitions. The core definitions area. GEA (Gross External Area)b. GIA (Gross Internal Area)c. NIA (Net Internal Area).[36]I do not need to look at GEA but I do need to look at GIA since its relationship with NIA is of some relevance in the present case. The core definitions of both GIA and NIA (sections 2 and 3 respectively) begin with some introductory words (2.0 and 3.0). Under this are two columns headed Includingand Excluding with paragraphs numbering sequentially (2.1 to 2.17 and 3.1 to 3.10 for inclusions and 2.18 to 2.22 and 3.11 to 3.21 for exclusions). Each set of core definitions is followed by a page with two columns headed Applications and Notes (with each Application being labelled APP and each Note being labelled GIA or NIA as appropriate). Each set of core definitions is followed by a set of diagrams giving examples of inclusions and exclusions, the diagrams being “to illustrate how to apply [GIA/NIA]”. For ease of reference, I set out at the end of this judgment an appendix containing the definition of NIA contained in 3.0 to 3.21.[37]The introductory words in each case are as follows:a. “Gross Internal Area is the area of a building measured to the internal face of the perimeter walls at each floor level. (see Note GIA 4)”b. “Net Internal Area is the usable area within a building measured to the internal face of the perimeter walls at each floor level. (see Note NIA 2)”. The two Notes are in the same terms, and direct measurement to the brick/block work or plaster coat, not to the surface of internal linings installed by the occupier.[38]In relation to both definitions there has been some debate before me about whether the inclusions and exclusions are simply explanatory for the avoidance of doubt in cases of ambiguity or whether they include or exclude areas which, on any reading of the introductory words, would otherwise be excluded or included (as the case may be). It seems to me, however, that that question is inextricably linked with the question how the opening words themselves are to be construed, in particular whether the definition of NIA requires each area of NIA to be an area of “floor”.[39]For instance, 3.3 includes notional lift lobbies ie the area close to a lift which has to be kept clear if the lift is to be capable of operation to allow access for passengers or goods. On one view, that area is not usable in any practical sense, but is expressly included in NIA even if it is not “usable” within the meaning of 3.0. But on another view, the space is “usable” within that meaning and 3.3 is included for the avoidance of doubt in the light of the express exclusion of permanent lift lobbies in 3.14. To take another example, compare the inclusion of “Kitchens” (3.4) with the exclusion of “toilets, toilet lobbies, bathrooms, cleaners’ rooms, and the like” (3.12). It is not entirely easy to formulate an interpretation of “useable” which includes the former but not the latter or vice versa: at least, such formulations as have been suggested to me are ones I find unconvincing. So the inclusion of the one and the exception of the other is, one way round or the other, both clarificatory and substantive at the same time.[40]Mr Dowding QC for Kilmartin submits that the emphasis in the definition of NIA is on the area being usable, a word which he says should be given its ordinary meaning of capable of use for some purpose. He does not suggest that any purpose whatsoever is enough: it would, for instance, be possible to place an ornament or a vase of flowers on even a narrow, high, plinth of a type which all parties and their experts would agree is not within NIA. Rather, he says that the meaning of “usable” is coloured by the context in which it is used and means use for a practical purpose in connection with the purpose for which the premises as a whole are contemplated to be used, in this case retail use generally not restricted to supermarket use since that wide use is(a) permitted as a matter of planning and(b) permitted under the terms of the proposed Lease.[41]Further, he submits that there is no overriding requirement under 3.0 that each and every area of NIA must be “floor”; accordingly, the Front Sloping Area is not excluded from NIA simply by virtue of being a narrow, steeply sloping, area which might not properly be called a floor. Similarly, if the Basement Ramp and the Front Plinths are not (contrary to his submission) properly to be called floors, they are not thereby necessarily excluded from NIA.[42]Mr McGhee QC for Safeway submits that for an area to be within NIA it must be a “floor”: this he suggests is a necessary inference from the use of the phrase “at each floor level”. It is only once an area is determined to be floor that one needs to go on to see whether it is “useable”.[43]Further, he submitted in his opening that “useable” in this context means that the area has to be capable of use without undue restriction for any of the purposes of the use contemplated by the Agreement and the Lease.[44]The experts did not express an expert opinion on the question whether an area needed to be “floor” before it could be included within NIA. They approached the matter from the “useable” area aspect albeit differing, as a matter of judgment, on which side of the line certain of the disputed areas fell.

The Expert Evidence

[45]As a matter of actual measurement of dimensions, there is no relevant dispute between the experts. Where the evidence is of some assistance is in relation to the application of the Code in practice. I mean no disrespect to either of them in saying that I did not find their evidence to be of much help in relation to the essential issue of whether the disputed areas (other than the lifts) comprise usable areas. Neither of them was able to provide a formulation of “usable” which would determine whether the disputed areas were, indeed, “usable”; each of them said that it was a matter for judgment in any particular case. The difficulty is that they were unable to provide criteria by which that judgment is to be exercised other than the application of commonsense and the benefit of experience. By the latter is meant, I suppose, the results, over a number of years and in relation to a number of properties, of negotiating or judging what is and is not “usable”. I should, however, say something about the evidence from each of them.[46]Mr Molloy, for Kilmartin, gave some surprising evidence. He said that, in conducting the measuring exercise for the purpose of notifying Safeway of the NIA, he adopted the following approach. A number of areas were discovered, in the course of the measuring exercise, which gave rise to uncertainty: on one view they would be included in NIA on another they would not. Taking those uncertainties in the round, he determined an NIA which he regarded as reasonable and fair to all parties concerned. He identified his function in his letter dated 15 September 2005: the independent measurer “is required to provide a judgment as to what is useable space being both fair and reasonable to all relevant parties”. I find that to be a surprising approach and would expect his client to be surprised too. He had not been asked to effect a judgment as between the parties as to what was fair or reasonable: he was asked to measure a space, an exercise which may give rise to the exercise of judgment (ie is an area included or excluded) but not the exercise of a balancing act between two parties. Mr McGhee suggests that this is not really what Mr Molloy did at all and that, in saying the Front Plinths were excluded, he was making a judgment about them in the sense just indicated. However, on the approach which Mr Molloy says he adopted, it would appear that he did not look at each doubtful area independently and ask himself whether it fulfilled the criteria relevant to qualify as NIA. Not having asked himself the question, he did not answer it. According to his evidence, he regarded his figure almost as a starting point on which the parties would then base negotiations as to the figure to agree as the NIA. On this basis, he excluded the Front Plinths from his original assessment of NIA. In cross-examination, he said that, looking at the Front Plinths in isolation, he regarded them as included within NIA, although in his second report he went no further than to say that it would be a perfectly reasonable view to include them without expressly saying that he would include them. However, in cross-examination, he also said that he thought that the Front Plinths should be excluded. Mr McGhee suggests that this shows complete inconsistency in his answers, but I think, in context, it is more likely than not that Mr Molloy was simply reiterating the approach which he says that he had previously adopted in attempting to reach a result which was reasonable and fair to all parties. Nonetheless, his evidence on this aspect was not satisfactory and I do not consider that I can attach much weight to his conclusion.[47]Mr Molloy considered that both the Basement Ramp and the Front Sloping Area were usable areas. As to the Basement Ramp, even in its present state, it could be used for racking and storage. Similarly, the Front Sloping Area could, he thought, be used in its present state for displays.[48]Mr Molloy also took as his approach to take GIA as the starting point for ascertaining NIA, deducting from that area the exclusions in 3.11 to 3.21 but leaving included any areas within 3.1 to 3.10. To the extent that an area is within GIA and not excluded by those exclusions, it would generally fall within NIA. However, I did not understand his evidence to be that he would include an area falling within GIA but which was not “usable” as he understood that word, notwithstanding that it did not fall within an express exclusion.[49]As to the meaning of “usable”, as I have said, Mr Molloy considered this to be a matter of judgment. He did not contend that any use whatsoever (eg the use of a plinth for standing ornaments or vases on) would be enough. But he did not consider that it was necessary for all the principal activities of the proposed use of the premises to be capable of being carried on, on the area concerned.[50]Mr Osmond’s evidence did not suffer from inconsistent answers in relation to the same issue. However, he was clear that he had measured the premises as he saw them, as he had been instructed to do, and did not take into account any work which could be done to render usable, whether more effectively or at all, areas which he regarded as unusable in their present state. Thus, he did not take account of the possibility of filling-in or placing a frame across the Front Sloping Area to make it a continuous level surface with the adjoining level ground floor area. He agreed that works of that sort could be done without great difficulty and not at great expense. Nor did he take account of the possibility of erecting a frame to level the Basement Ramp with the higher area of the adjoining plant room.[51]It is, nonetheless, clear that he did take into account the fact that some works would be done, and would need to be done, to make the premises fit for use as a supermarket. In its present state, the premises are simply not ready for use and, in a literal sense, are not usable as they stand. Mr Osmond therefore, obviously correctly, took into account the possibility of reasonable works being undertaken, in ascertaining whether any particular area was “usable”. It would not, however, have been right – and Mr Osmond himself did not do this – to answer the question “usable or not?” on the facts of the present case by reference to the actual fitting out works which Safeway had in mind by the date of Practical Completion. Those works included, for instance, the installation of toilets which, on a literal application of the Code, would have been excluded from NIA. The reason for this will appear later and is to do with the true construction of the Agreement rather than of the meaning of the Code in as it were in the abstract.[52]If it is right to take into account works such as shopfitting works, the question arises whether other possible works should be taken into account. In the end, Mr Osmond accepted that an area would be “usable” if, although not usable in its existing state, it could be made usable pursuant to non-structural and inexpensive works.[53]More generally, Mr Osmond expressed the opinion (see paragraph 3.6 of his first report) that to be usable, space would “need to be capable of use in relation to the commercial activity being envisaged for the property in question”. I do not think that Mr Dowding would disagree with that; storage use would qualify for a retail activity such a supermarket would clearly have a commercial need for a considerable amount of storage space. In cases at the margin, he, like Mr Molloy, saw the issue as being one, ultimately, of judgment. He did not, so far as I can see, adopt the approach which Mr McGhee suggested in his opening. Conclusions on

The Code

[54]In my judgment, the approach to the Code which Mr Dowding urges on me in relation to(i) the need for an area to be “floor” before it can be within NIA and(ii) the meaning of “usable” is correct on both counts.[55]As to (i), the focus of the core definition in section 3 is, I consider, on whether an area is usable or not, albeit that in the vast majority of cases a usable area will also be floor. There is, in principle, no reason which I can see, and none has been suggested, why a usable area which is not “floor” but which is within GIA, should be excluded from NIA.[56]As to (ii), Mr McGhee is no doubt correct in saying that the test cannot be whether any use whatsoever is enough for the area to qualify as “usable”. It is, in my view, also correct that the test cannot be an ability, without any undue restriction, to use the premises for any of the purposes contemplated for the premises as a whole. I note that Mr McGhee himself retreated from that approach in his closing submissions. He did not seriously contend that, on the true meaning of the Code applied to a particular building, each and every area of the building which falls within NIA had to be capable, at least under some configuration, of use for any of the purposes for which the building was to be used. Take, for instance, a case where a landlord supplies a building, for use as retail shop premises, which contains a small kitchen within structural walls (so that the space could not simply be incorporated into a larger area). Even if the kitchen could be stripped out and used for other purposes, such as storage or even, let it be assumed, office space, it could well remain incapable for use as retail space and could not, therefore, be used for all purposes. It is not difficult to think of many similar examples where a space is clearly to be regarded as “usable” but cannot be used for the entire range of uses which the business may require.[57]Accordingly, the correct approach, in my judgment, is that an area is usable if it can be used for any sensible purpose in connection with the purposes for which the premises are to be used. This is so whether or not it is “floor”. Such space will therefore be within NIA subject to the express exclusions in section 3 of the Code. In practice, virtually every area of space which is excluded from NIA will fall within one of the express exclusions. It is not easy to think of areas which are both(i) not “usable” and(ii) not within one of the express exclusions. A steep ramp of a permanent nature might be one such example but is the only one which comes to my mind.

The Lifts

[58]Whether the areas taken up by the lifts (in which I include the permanent lift lobby) are included in NIA (as defined in the Agreement) is a question of construction of the Agreement in the light of the Code. It is not a matter on which the experts were able to help since it is clear that the lifts, as such, are excluded under 3.14 if the Code is looked at isolation.[59]In interpreting the Agreement, three matters are clear (and are common ground). First, areas form part of the “usable” space in ascertaining NIA notwithstanding that Safeway (or any other occupier) would need to carry out works (eg shopfitting, floor finishing) before the space could in practice be used. Secondly, if the Agreement had contained an unconditional obligation on Kilmartin to provide in a defined area a facility which brings that area within an exclusion (eg toilets under 3.12), the area would fall outside NIA for the purposes of the Agreement. Thirdly, in the absence of any provision at all about such facilities, the fact that Safeway would, in fact, use certain areas for certain purposes (eg the provision of toilets – something which is no doubt compulsory under health and safety requirements) in the course of its fitting-out works, does not result in any deduction from NIA.[60]Indeed, in relation to this last point, it is agreed that, even if Safeway had in fact installed such facilities before the time when the formal measurement of the Premises was due to be made pursuant to the terms of the Agreement, such areas would nonetheless remain included in NIA. Kilmartin reach this conclusion on the basis that it is Safeway’s choice whether to use a particular area of what could be usable space for a purpose which falls within one of the exclusions in section 3 and that the NIA in the context of the Agreement cannot depend on the exercise of such choice (whether that choice is implemented before or after the measurement date). Safeway accept the conclusion. In doing so, it does not accept as a sufficient reason the fact that the use of the area is its choice; it does so only because the Agreement casts no obligation on Kilmartin itself to provide such facilities.[61]Mr Dowding submits that the lift areas are to be included in NIA because it was Safeway’s choice to include the lifts just as it would have been their choice to install toilets in a particular area. He says that the object of the Agreement was to provide Safeway with a shell which it would configure and fit out in the way it wished. It should not depend on the choice made by Safeway (over which Kilmartin had no control) whether an area is included in NIA or not. The area taken up by the lifts was capable of being usable area and remains so notwithstanding the actual installation of lifts at the request of Safeway.[62]Mr McGhee submits that there is an important material difference between the lifts and other areas which Safeway might chose to use for purposes which would normally exclude the area from NIA under the Code. This difference arises because the lifts, in the events which have happened, form part of the Works as defined in the Agreement whereas other areas which I have just referred to do not do so. The reason for this is that the specification provides that, where Safeway agree – as it is common ground they did at some date well before the date of Practical Completion – that the staff and office accommodation are to be at a level other than sales area level and that storage/goods handling will be at a level other than sales area level, the disabled lift and goods lift are to be installed. Being part of the specification, the lift installation forms part the Works and is to be carried out at the expense of Kilmartin. Further, the lifts as so installed then form part of the demise and are taken into account on subsequent rent reviews. Mr McGhee says that there is no difference between this situation, where Safeway is entitled to require the lift works to be carried out and does so require, and the situation which would have obtained if those works had been an unconditional obligation of Kilmartin from the beginning. He also points out that it is only once the date of Practical Completion has occurred that the mechanism for determining NIA (under Clause 6.4.3 of the Agreement) comes into effect. It is clear that what is to be measured is the NIA of the Premises taking account of the Works (but not the Tenant’s Works).[63]Mr Dowding submits that that cannot be correct for at least three reasons. First, he says that it cannot be correct that Kilmartin might be exposed to the risk of providing an area smaller than the minimum as a result of a decision by Safeway to require lifts to be provided, thus reducing the NIA. Secondly, he says that the size of the lift is not specified in the specification: it cannot, he suggests, be correct that Kilmartin might be exposed to that same risk as a result of a decision by Safeway to require large lifts to be provided. Thirdly, he points out that, under Clause 4.4.14, Safeway is able to give notice to Kilmartin on the grant of Planning Permission whether it considers the permission to contain Onerous Conditions one of which, it will be remembered, is a condition which limits the NIA of the Premises to less than the Minimum Area. It must be possible, Mr Dowding submits, to be able to say, at latest by the date of Planning Permission, what the NIA is, otherwise the parties would not know whether a planning condition which has the practical effect of limiting the NIA is an Onerous Condition or not.[64]In my judgment, Mr McGhee is correct in his conclusion that the area occupied by the lifts is excluded from NIA for the reasons which he gives. The correct time for ascertaining NIA is immediately after the date of Practical Completion. In my judgment, the measurement of the Premises should be in their actual state at that time. As a matter of fact, no work had been done by Safeway pursuant to its proposed fitting out works, and no work had been done by Kilmartin which it was not obliged to do pursuant to the Agreement and the specification. It would not be correct, in my judgment, to include any area which at that time in fact falls within any of the exclusions in section 3 unless that was work carried out by or on behalf of Safeway which it was not an obligation of Kilmartin to provide.[65]I reject Mr Dowding’s submission which has the result that the Code is disapplied in relation to works which Kilmartin was obliged to carry out but which, had Safeway made a different decision (ie not to require the lifts), it would not have been required to provide. The correct approach is to ask, at the date of Practical Completion, what the state of the property is which Kilmartin is bound to provide and to measure that property; it is not to measure the property in some other state which, in different circumstances, Kilmartin would have been bound to provide.[66]I do not consider that Mr Dowding’s counter-arguments set out in paragraph 63 have any force. As to the first, this is a matter which it was possible for Kilmartin to take into account in assessing figure for the Minimum Area to be inserted into the Agreement. As to the second, the specification says nothing about the size of the lift to be provided; it is no doubt implicit that only lifts appropriate to the size of the Premises and their use as a supermarket could, in the event of dispute, be insisted on by either party.[67]As to the third, the provision gives an opportunity to Safeway to object to the Planning Permission when it is clear that NIA will fall below the minimum area (eg even assuming no lifts are installed) as the result of a planning condition. That question is, in my view, to be looked at on the basis of the facts as they are then known (including whether Safeway has made a decision which, in accordance with the specification, requires a lift or lifts to be installed). Whether a waiver by Safeway of a condition which restricts NIA to a figure below the minimum would thereafter preclude it from seeking subsequently to terminate the Agreement under Clause 15 may be open to question; it is not a question which arises since no such condition was imposed in the Planning Permission.

The Adjoining Area

[68]It is now common ground that a fire escape route passes through this area. It will fall within exclusion 3.15 if it is both a “corridor” and a corridor “of a permanent essential nature (e.g. fire corridors, smoke lobbies etc)”. It is also common ground that, under the Fire Strategy Report for the Premises, the minimum width of exit for this escape route is 850mm and that the width of the Adjoining Area is over 2 metres.[69]Mr Molloy considers the Adjoining Area to form part of one room with the main delivery area. Alternatively, if it is to be looked at by itself, it is a room and not a corridor. Mr Osmond considers that the Adjoining Area does not form part of a single room with the main delivery area and that viewed by itself it is not a room but a corridor, and one which is of a permanent essential nature since it is the only fire escape route from the main delivery area and refuse store beyond it.[70]Mr Molloy says that the Adjoining Area is capable of practical use (eg for storage) even allowing for a width of 850mm which must be kept clear as a fire route; and it is clear on any view, whether or not it is a fire corridor, that it can, should the need arise, be used for manhandling goods from the main delivery area at one end through the large aperture at the other end which I have mentioned. Mr Osmond, who has considerable experience in dealing with fire officers, says that such storage use would not be allowed.[71]A fire escape route might pass through an area (eg the main retail floor) which is clearly not a corridor. In such a case, a minimum width (depending on the requirements of the fire officer) will have to be kept clear. Where the area as a whole is usable space, the need to provide such a route through it does not reduce NIA by the area of the fire route. The space which the fire route occupies is not thereby rendered unusable for the purposes of the Code.[72]A fire escape route might pass through what is clearly a corridor and not a room. The corridor might, however, be wider, perhaps considerably wider, than is required for a fire corridor. Where the corridor is formed by permanent walls (I say nothing about the position where the corridor is formed by partitions which could be removed and its width narrowed), it seems to me that the corridor is nonetheless a fire corridor the whole of which is to be excluded under 3.15 of the Code. This is so even though it may contain space capable of practical use without objection from the fire officer eg for storage along one of its walls.[73]If the fact that there is a fire route through the Adjoining Area is ignored, it would, in my judgment, not be correct to call it a corridor. It is either part of a single room together with the main delivery area; or it is a separate room. And, in either case, it would have a practical use for storage. However, if one takes into account the requirement to provide a fire escape route, I accept Mr Osmond’s evidence that no practical use could be made of the area because the fire officer would not allow it. The question then is whether the Adjoining Area is to be excluded from NIA when it is rendered incapable of use by a fire safety requirement either because it thereby becomes a corridor (or a mere circulation area, the other category mentioned in 3.15) or because it ceases to be “usable area” within 3.0. Whilst the experts addressed the question whether the Adjoining Area could, in practice, be used for storage (and took different views on that as just recorded), they did not, unfortunately, address the question whether, assuming that the Adjoining Area is a room, or part of a room, rather than a corridor, a refusal by the fire officer to allow any storage would render the area unusable for the purposes of the Code. Enjoined, as I am by the introduction to the Code, to give great weight to a commonsense interpretation of ordinary words, I do not consider that an area, the whole of which is rendered incapable of practical use, can be described as usable. In my judgment, therefore, it follows that the Adjoining Area is not within NIA. I should add that I do not consider that the possible use of the Adjoining Area for manhandling goods on occasions where the goods lift is out of order or where the items are too large for it renders “usable” that which is otherwise unusable.[74]I should also add that, if I am wrong in my conclusion in relation to the goods lift, then the area taken up by it on the ground floor would form part of one area together with the Adjoining Area. That total area would, in my judgment, then be usable space since there is no evidence before me to suggest that its use would be prevented by the fire officer.

The Sloping Area

[75]Applying the test of “usable” which I consider to be correct as already discussed (ie capable of use for any sensible purpose in connection with the purposes for which the premises are to be used) I have reached the clear conclusion that the Sloping Area is “usable”. I incline to the view that it is usable even if the slope remains, it being possible to erect displays and perhaps kiosks without the need to level the floor. Even if that is wrong, the evidence from Mr Osmond, which I think accords with commonsense, is that it would be possible without undue difficulty or expense to construct a frame to carry a level floor across the Sloping Area so as to make a continuous horizontal surface with the existing ground floor.

The Basement Ramp

[76]This is more problematical that the Sloping Area. Mr Osmond considers that it is not usable in its present state whereas Mr Molloy considers that it would be possible without difficulty to erect racking for storage. In his first report, Mr Osmond states (at paragraph 3.6) his opinion that to be usable a space would need to be capable of use in relation to the commercial activity being envisaged for the property in question. I see no reason why that should exclude any use, such as storage, necessary in the conduct of the business. He then goes on to say this:
“Therefore I would consider a ramp should be excluded from the core definition of [NIA] if it is more substantial than a ramp of lightweight construction to false floors, and also not capable of use for the general commercial activity being envisaged within the property concerned.”
[77]I do not understand why Mr Osmond excludes the Basement Ramp from NIA unless either he rejects storage as a possible use or rejects storage as part of the general commercial activity he refers to. Further, as I have already mentioned, his report was written on the basis that he ignored possible alterations (not amounting to structural alterations) which could reasonably be undertaken by Safeway. Having inspected the site and seen the slope for myself, it seems to me that Mr Molloy is likely to be correct when he says that, even in its existing state, the Basement Ramp could be racked and used for storage. For my own part, I do not see why there would be any real practical difficulty in erecting a wooden, or perhaps even metal, frame to make a floor level with the adjoining raised area to which the metal steps lead. Mr McGhee says that there is no evidence of that. But I think that I am entitled to form some view of what can and cannot be done without the help of any expert building surveyor or architect. Accordingly, even if I am wrong in thinking that the Basement Ramp is usable in its present state, it could be rendered usable without undue difficulty and it, for that reason too, to be included in NIA.[78]I add that I do not find gain any assistance from the express inclusion in 3.6 of “Ramps of lightweight construction to false floors”. It would not be correct, in my judgment, to infer from that that any other ramps are therefore excluded. I suspect that inclusion was made in order to deal with a specific difficulty which the drafters of the Code had identified. It does not indicate one way or the other whether a permanent ramp other than to a false floor is or is not usable space. Indeed, the agreed inclusion in NIA of the ramp from the main entrance to the ground floor shows that the experts did not consider that a ramp had, of necessity, to be excluded.

The Front Plinths

[79]Mr Osmond does not consider that the Front Plinths are usable areas. He acknowledges that this is very much a matter of judgment. I have already dealt with Mr Molloy’s evidence in relation to the Front Plinths and said that I do not think that I can place much weight on his evidence. However, it seems to me that I must judge for myself whether the area of the plinths is “usable” area applying the essentially commonsense test which I have already discussed: I do not, on this aspect of the case, gain much assistance from the views of Mr Osmond and Mr Molloy on what is not, as I see, really a matter of expertise. Nor do I gain any assistance from the fact that the parties and their experts agree that the plinths in the plant room area are not within NIA. Those are high and narrow plinths having no practical use; and in any case, if they are to be regarded as part of the wall (which on a superficial inspection it would be unsurprising to find that they were) they might be excluded from NIA since the measurement of area is to be taken to the inside of the internal wall at each floor level. At floor level, the inside face would be the foot of the plinth so that the area of the plinth would be excluded. The Front Plinths do not appear to be part of the wall, although it is probably a matter for expert evidence to establish whether the plinths have any structural function. They are not inaccessible, albeit that it may be necessary to construct some sort of steps up to them, but that would not be difficult to do. In my judgment, the Front Plinths (excluding the small upper component – see paragraph 32 above) are capable of practical use, once again for storage if for no other purpose.[80]My conclusions on the Disputed Areas are therefore(i) that the Sloping Area, the Basement Ramp and the Front Plinths (excluding the small upper component) are included in NIA but(ii) that the areas occupied by the lifts and the Adjoining Area are both excluded from NIA.[81]On that basis, NIA slightly exceeds the Minimum Area of 1852.7 square metres. The parties are agreed that the starting point for resolving the dispute is an area, including all the Disputed Areas other than the Front Plinths, of 1,871.1 square metres; adding an area in respect of the Front Plinths of 21.4 square metres gives a total of 1,892.5 square metres . The total area of the items which I have found are to be excluded is 18.7 square metres (goods lift) + 9.6 square metres (disabled lift) + 8.6 square metres (Adjoining Area) a total of 36.9 (or 37.1) square metres. Accordingly, NIA comes in at 1,855.6 square metres, some 3 square metres in excess of the Minimum Area.

Tolerances

[82]Kilmartin have one further point which concerns tolerances. The experts are agreed that measurements cannot be 100% accurate. They agree that the measurements are accurate to +/-1%. This total figure comprises agreed components relating to instrument error, building error eg because of uneven surfaces making measurement difficult and human error. Mr Dowding submits that the figure of 1,871.1 square metres agreed as the starting point must be regarded as the midpoint of a bracket of which the top point is 1,889.8 square metres (ie 101% x 1,871.1). The difference between this and the Minimum Area is 37.1 square metres. The right of termination will only have arisen if the areas which ought to be excluded exceed that figure.[83]Strictly, I do not need to deal with this submission in the light of my conclusions on the Disputed Areas. However, if I am wrong on any of those, the “tolerance” issue may have a serious effect on the outcome. Accordingly, I do deal with the submission. I reject it. The Minimum Area itself is, of course, a specified figure and not a range. NIA is defined in a way which, prima facie, requires the determination of a figure and not a range. Kilmartin’s architect is required, under Clause 15, to provide a figure, not a range, for NIA after the date of Practical Completion; and it is the function of the independent expert appointed under Clause 15 to ascertain a figure not a range. The experts have agreed figures for the various areas (save for a small difference in relation to the disabled lift) and not simply a range of figures. In all these cases, the figures determined are subject to possible error within the tolerances, although the figure actually measured could be anywhere in the range. It is, however, the figure as measured, whatever its actual departure from the 100% accurate figure (even assuming if there is such a unique figure) which is the figure to take as NIA for the purposes of the Agreement.[84]I have reached a clear view on that point. It is a result which is consistent with, and supported by, the approach which, as Mr Dowding concedes, has to be applied when conducting a rent review or ascertaining service charge when a figure, and not a range, has to be applied. It would require clear wording, which is in fact not present, if a different approach were to be applied to the use of NIA in the context of Safeway’s right to terminate.

Conclusion

[85]The NIA of the Premises is in excess of the Minimum Area. Accordingly, Kilmartin’s claim for specific performance of the Agreement succeeds.

Cited in 1 later judgment