Royal Free London NHS Foundation Trust v Newlon Housing Trust [2026] EWHC 2085 (Ch)

[2026] EWHC 2085 (Ch)Case No PT-2025-000375IN THE HIGH COURT OF JUSTICEBUSINESS AND PROPERTY COURTS OF ENGLAND AND WALESPROPERTY TRUST AND PROBATE LISTVenue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 11/08/2026
Before
MASTER KAYE SITTING AS A DEPUTY HIGH COURT JUDGE
Between
ROYAL FREE LONDON NHS FOUNDATION TRUSTClaimantNEWLON HOUSING TRUSTDefendant
Mark Sefton KC (instructed by Bevan Brittan LLP) for ClaimantDavid Holland KC (instructed by Trowers & Hamlins LLP) for DefendantHearing Hearing dates: 23,24 March 2026Further written submissions April 2026
Approved JudgmentThis judgment was handed down remotely at 10.30am on 11 August 2026 by circulation to the parties or their representatives by e-mail and by release to the National Archives..............................MASTER KAYE SITTING AS A DEPUTY HIGH COURT JUDGE

Master Kaye sitting as a Deputy High Court Judge :

[1]This is my determination of four Preliminary Issues which I set out below with a summary of my answer on each issue: Preliminary Issue 1: Whether the Claimant and Defendant are bound by the determination dated 31 August 2022 of AP Harris LLM FRICS FCIArb that, in determining the Market Value under the Lease, the bid of any special purchaser should not be taken into account. Answer: The Claimant and Defendant are not bound by the determination dated 31 August 2022. Preliminary Issue 2: If the Claimant and Defendant are not so bound, then: whether, in determining the Market Value under the Lease, the bid of any special purchaser should not be taken into account. (“the Special Purchaser issue”) Answer: The bid of a special purchaser is not excluded from being taken into account as a matter contractual interpretation. Preliminary Issue 3: If the bid of any special purchaser should not be taken into account, then: whether or not the Defendant is nevertheless entitled to contend that the Market Value under the Lease can include a sum that is referable to the hypothetical purchaser’s hope of selling the Lease on to a special purchaser, namely the Claimant, for it to carry out a wholesale redevelopment of the site of which the demised premises under the Lease are a part.(“the Hope Value issue”) Answer: The Defendant is entitled to so contend as a matter of contractual interpretation. Preliminary Issue 4: Whether or not the assumption of vacant possession in the definition of Market Value means, as the Defendant asserts, that the valuation is to be made on the basis that the hypothetical vendor is not obliged to provide alternative accommodation at a different site to replace the accommodation at the demised premises. (“the Reprovision issue”) Answer: The assumption of vacant possession (unencumbered by the Nomination Agreement) does not mean that the valuation is to be made on the basis of an assumption of a negative requirement for reprovision as a matter of contractual interpretation. Any assumption positively or negatively in relation to reprovision as part of the valuation will be a question to be determined on the evidence.[2]I have had the benefit of written and oral submissions from counsel which I have considered with care and taken into account when reaching this decision.[3]The Preliminary Issues are questions of law and contractual interpretation and construction but in order to determine them I have been referred to and had regard to the factual chronology and the underlying documents including the contractual expert determination to which Preliminary Issue 1 relates.[4]Mr Sefton KC and Mr Holland KC and their respective instructing solicitors Bevan Brittan (“BB”) and Trowers & Hamlins (“T&H”) represented the Claimant and Defendant prior to and during that expert determination process. The Claimant and Defendant retained valuers, Mr Lee and Mr Cotterell, who prepared valuation reports and advised them prior to and during the expert determination. Both parties made extensive submissions through counsel and their valuers as part of the expert determination in respect of each of the Special Purchaser issue, the Hope Value issue and the Reprovision issue.[5]The Claimant is an NHS Trust and the owner of a building described as Queen Mary’s Hospital, East Heath Road, London SW3 (“the Trust” and “the Site”). The Site has not been used as a hospital since about 2008.[6]The Defendant is a not-for-profit Community Benefit Society and a charitable housing association. It is a Registered Social Landlord which provides affordable housing in London (“Newlon”).

Factual Chronology:

[7]Pursuant to the terms of a lease dated 1 July 2005 (when the hospital was still operational) the Trust leased parts of the ground floor and the second floor of the Site to Newlon for a term of 99 years (“the lease” and “the Premises”).[8]The Premises comprised 1 flat and 53 bedsits with shared facilities on the second floor with ground floor access to the accommodation. The bedsits are arranged in clusters which then share a bathroom and kitchen, some with additional WCs and showers. There are three residents common rooms, a laundry and an administrative office.[9]The lease was part of a larger transaction involving two other properties owned by the Trust, William Gunn House and later Ann Bryan House which were also leased to Newlon. Newlon paid a total premium of £5m. DTZ produced a spreadsheet apportioning the premium across the three sites, it appears, by reference to the number of habitable rooms (there were 306 across the 3 sites of which only 54 were in the Premises). £843,558 of the premium was allocated to the lease. Newlon agreed to, and did, undertake refurbishment works to the Premises at a cost of £483,000. The rent was a peppercorn. The Trust says that the purpose of the transaction and, in particular, the Nomination Agreement (see below) was to enable the Trust to outsource the provision of accommodation for nurses and healthcare workers. They say that the way in which the premium was calculated and the purpose of the lease to outsource the provision of staff accommodation is important context for this dispute.[10]The suite of documents entered into on 1 July 2005 included a Nomination Agreement which provided the Trust with exclusive nomination rights in respect of the provision of accommodation for its staff in the Premises and at the other properties at set rent levels. The classes of person who could be nominated were defined in the Nomination Agreement as Healthcare workers and Key workers (nominated by the Trust) and/or Newlon Tenants. Where the accommodation was not fully occupied by those nominated by the Trust it was therefore available for Newlon to provide affordable social housing more generally to Newlon Tenants. However, the Trust had first call on the accommodation for its staff. This was consistent with the intention to outsource the provision of staff accommodation.[11]The Site is in a prime location in Hampstead with substantial redevelopment potential. Other than the continuing use of the Premises, the Site has been largely unoccupied since 2008.[12]It is common ground that when the lease was entered into it was envisaged that the Site might be redeveloped during the currency of the lease. Both parties understood the potential for redevelopment. Consequently, unlike William Gunn House and Ann Bryan House, the lease contained a landlord’s break clause (clause 9 (3)) to facilitate that potential for redevelopment. Newlon says that the potential for redevelopment was also implicit in the definition of Market Value in Schedule 1 of the lease which refers to “the potential for change of use”. The Landlord’s break clause provided a mechanism for calculating the amount of any compensation to be paid if it were exercised. It was a bespoke clause implying that some consideration had been given to its terms.[13]The lease contained provisions limiting the ability of Newlon to assign the lease without consent, with the conditions for consent linked to the provision of social housing (clause 6(3)). This was replicated in the other two leases. The leases restricted assignment to a Registered Social Landlord as defined. The lease specifically provided that it would be reasonable to withhold consent if the Registered Social Landlord condition had not been met. The Nomination Agreement then provided an additional layer of restrictions allowing the Trust to prioritise the use of the Premises for its staff at fixed rents.[14]The Site was allocated for housing in the proposed new Camden Local Plan. On 4 October 2017 the Local Planning Authority, London Borough of Camden (“LBC”) gave a pre-planning indication, in relation to two sites – the Site and parts of the main Royal Free Hospital site. In relation to the Site, LBC indicated that a proposal to demolish the hospital buildings (which include the Premises) on the Site and erect 150 flats was in principle acceptable subject to conditions. The pre-application indication was that there would be a condition requiring reprovision of the social housing stock elsewhere in LBC. This was in addition to the usual condition about affordable housing across the two sites.[15]The Trust and Newlon were legally represented when the lease and the Nomination Agreement were negotiated. The lease and its schedules contain drafting errors which appear to be of the type that creep into complex suites of documents when amendments are made (often late on in the process) and are not carried through/across the document(s) such as paragraph numbering or inconsistency of definitions. Mainly the parties have taken a sensible and pragmatic approach to those errors.[16]The break clause is set out in clause 9 and Schedule 1 of the lease (set out in full in Annex1). In summary; Clause 9(1) made provision for the Trust to serve notice on Newlon to require it to provide an estimate of the compensation that would be payable if the Trust operated the break clause and terminated the lease (“theEstimate”). The Estimate was to be calculated in accordance with the provisions of Schedule 1. This would then enable the Trust to understand the amount which Newlon considered would be payable if the Trust were to operate the break clause (clause 9(3)).[17]Schedule 1 was entitled: “CALCULATION FOR THE COMPENSATION TO BE PAYABLE BY [THE TRUST] ON EXERCISING ITS BREAK CLAUSE” (bold in the original). It defined compensation as “the amount of compensation payable shall be calculated using the following calculation”: “COMPENSATION = THE LOWER OF EITHER A: NET EXPENDITURE TO DATE + FUTURE NET INCOME + BREAKAGE COSTS (“OPTION A”); OR (each of the terms was then defined and explained in the schedule – see the Annex) B: EIGHTY PER CENT (80%) OF MARKET VALUE (“OPTION B”)” (bold in the original) A: NET EXPENDITURE TO DATE + FUTURE NET INCOME + BREAKAGE COSTS (“OPTION A”); OR (each of the terms was then defined and explained in the schedule – see the Annex) B: EIGHTY PER CENT (80%) OF MARKET VALUE (“OPTION B”)” (bold in the original)[18]The parties had therefore agreed and included in the lease in Schedule 1 a definition of compensation and a bespoke mechanism for calculating it in the event that the break clause was operated.[19]Option A was a granular accounting exercise. The mechanism was set out over several pages. The detailed definitions of the terms used would enable any accountant to understand what they were being asked to do and to what they should have regard to when undertaking the accounting exercise. It was a calculation on an accounting basis of the capital value of the lost income stream to Newlon caused by the early termination of the lease. As part of the calculation of future net expenditure Option A used a discount rate. This was entirely conventional for the type of accounting exercise envisaged by Option A.[20]By comparison the amount of compensation payable under Option B was 80% of the Market Value once ascertained in accordance with Schedule 1 paragraph 5 of the lease. It therefore required the Market Value to be determined and then discounted to provide the sum payable by way of compensation. Market Value for the purposes of Option B was defined as: “…the value of the Premises with vacant possession unencumbered by the Nomination Agreement but reflecting the lawful planning use and the potential for a change of use and any conditions/obligations likely to be attached to a consent” (my emphasis)[21]Unlike Option A which the parties had defined in granular detail there was no further guidance about the approach the valuation exercise under Option B. The preliminary issues concern the parties’ disagreements about this definition.[22]The parties agree that what has to be valued is the market value of the residue of the term of the lease by reference to a hypothetical transaction on the agreed valuation date, 27 June 2018, between a willing seller and willing buyer. This was therefore the value to the tenant as a willing seller. The definition of Market Value included assumptions, regards/directions and disregards that a valuer was to take into account when determining Market Value for the purposes of that hypothetical transaction to enable them to determine the amount payable under Option B.[23]BB sent an Estimate Notice pursuant to clause 9(1) by letter dated 22 June 2018. Newlon then calculated its Estimate of the compensation it would be due under Option A and Option B. Newlon served its Estimate pursuant to clause 9(2) on 3 August 2018 with supporting documents from accountants and a valuer. The supporting documents make it clear that in relation to Option B, Newlon considered that marriage value was to be taken into account. The Trust was able to seek further information to assist it in its choice pursuant to clause 9(2).[24]Newlon calculated the compensation payable under Option A: £21.47m and Option B: £23.36m. Both the Estimate Notice and the Estimate were served after the LBC pre-planning indication.[25]Although Schedule 1 refers to the amount of compensation being the lower of Option A and Option B, pursuant to clause 9(3) it was for the Trust to choose between Option A or Option B when it served its Termination Notice having had the opportunity to consider the information it had received and to seek further information before doing so.[26]The landlord’s break clause in clause 9(3) was varied by deeds of variation dated 20 December 2019, 30 January 2020 and 27 February 2020 (“DOV”) to change the first date by which the break clause could be operated and to provide a fixed date for the valuation of compensation. Otherwise, clause 9(3) was substantially unchanged. All of the DOVs were also entered into after the in principle indication from LBC in 2017 and after provision of the Estimate referred to in clause 9(2). The 27 February 2020 DOV replaced the previous versions of clause 9(3):
“The Lessor may terminate the Lease upon either 1st April 2021 (hereafter called “the First Termination Date”) or the thirty-fifth or the seventieth anniversary of the commencement of the Lease PROVIDED THAT the Lessor shall serve no less than six months written notice on the Lessee of its intention to terminate the Lease (“a Termination Notice”) and shall confirm whether Option A or Option B shall apply PROVIDED THAT (for the avoidance of doubt) where the lease is terminated on the First Termination Date and Option B applies the valuation date shall be 27th June 2018 PROVIDED FURTHER THAT where the estimate initially given under clause 9(2) is less than the final figure that the Lessor can reasonably demonstrate may be payable under 9(1) then the Lessor may withdraw its notice of termination under this clause at any time prior to the date being 30 days prior to the Termination Date (Provided that if the notice is withdrawn the Lessor shall pay to the Lessee such reasonable and proper costs as the Lessee may have incurred as a consequence of a Termination Notice in preparation to cease operating at the Premises) specified in the Termination Notice.”
[27]There were clearly ongoing discussions about the Site and the Premises. When the 27 February 2020 DOV was entered into, the parties also entered into a Memorandum of Understanding (“MOU”) setting out the parties’ understanding and intention to work together in a way that would avoid the need for the Trust to pay compensation if it exercised the break clause. The MOU was entered into after the Estimate had been served so the Trust already knew the amount of compensation that Newlon considered it was likely to be entitled to. The MOU explained:
“The Royal Free London NHS Foundation Trust (RFL) and Newlon Housing Trust (NHT) are looking to enter into a strategic partnership. The overarching aim of this partnership is to optimise the parties' joint resources to provide improved health and housing outcomes for the community that we serve. The strategic partnership removes the necessity to operate the break in the QMH lease and for the calculation of the break compensation. In effect, the lease will be surrendered on the setting up or binding agreement to set up the strategic partnership. Both parties will be satisfied that by entering into the strategic partnership that enhanced value is achieved…. A working partnership to optimise the parties' joint resources to provide improved health and housing outcomes for the community that we serve, with specific objectives to: “optimise benefit derived from development utilising RFL's surplus land to derive income and capital receipt for investment into direct patient care…”
In order to agree to surrender their lease at QMH, NHT will need to be satisfied that the value to NHT from the strategic partnership will as a minimum be equivalent to the value to NHT that would have been achieved had the first lease break been exercised in accordance with the provisions of the lease.”[28]Rather than pursue the strategic partnership described in the MOU and in the knowledge of the Estimate figures, by letter dated 30 September 2020 BB (on behalf of the Trust) served a Termination Notice pursuant to clause 9(3) giving notice to terminate the lease on 1 April 2021. By the Termination Notice the Trust chose Option B as the basis for calculating compensation under Schedule 1. The valuation date for the purpose of calculating the compensation under Option B was therefore 27 June 2018.[29]Clause 9(5) of the lease required the parties to endeavour to agree the Market Value of the Premises (and consequently the amount payable under Option B). They appointed valuers to assist them, Mr Lee for the Trust and Mr Cotterell for Newlon. The parties were unable to reach agreement. Mr Lee considered that the compensation payable to Newlon under Option B was nil whilst Mr Cotterell maintained that it was in excess of £20m. The valuers had taken different approaches to whether and if so how the redevelopment and any marriage value should be taken into account and these produced significantly different outcomes. The parties were unable to resolve their differences and BB confirmed to T&H on 5 November 2021 that the dispute was to be referred for expert determination in accordance with clause 9(8) of the lease.[30]Clause 9(8) provides that:
“ In the event that the parties shall not have agreed any amounts payable under this clause 9 then the determination of any “costs” in accordance with [Schedule 1] shall be referred for determination of a single expert…”
The expert’s “…decision shall be in writing and his decisions as to the matter shall be final and binding on the parties hereto.”[31]The matter or matters to which clause 9(8) refers are therefore the Market Value as defined in Schedule 1 in respect of which 80% was the amount payable as compensation under Option B. A written decision pursuant to clause 9(8) of the Market Value of the Premises and the amount payable under Option B would be final and binding.[32]The parties were unable to agree the terms of referral. On 3 February 2022 T&H proposed that the parties instead agree a mechanism outwith clause 9 and appoint a QC to determine what they considered to be a matter of contractual interpretation and law before embarking on the expert determination – the Special Purchaser issue:
“The key issue between our clients’ respective positions, and the issue that creates the greatest divergence in the valuations is the question of whether the bid of your client as a special purchaser (and therefore “marriage value”) should be taken into account…. We therefore propose that this question of the interpretation of the definition of Market Value in the Lease be referred to an expert (we suggest a suitable property QC) for determination as a preliminary issue and the parties agree to be bound by the decision. It is likely that any expert valuer would need to take advice on this legal question in any event and so this appears to us to be the most expedient way of resolving this matter. Please take instructions on this approach and, if agreed, perhaps we can discuss a suitable expert to determine this legal interpretation issue.”
[33]BB declined. They considered that any such issues could be dealt with within the expert determination pursuant to the terms of the lease:
“We do not agree that the “greatest divergence in the valuations” is the question of whether marriage value applies…if there are any legal issues which need to be resolved, they can be resolved as part of the determination.”
[34]Newlon did not refer the Special Purchaser issue to court for determination in 2022.[35]On 4 Feb 2022, the Trust submitted an application to the President of RICS pursuant clauses 9(5) and 9(8) of the lease for the appointment of an expert to determine the amount payable under Option B. The Trust itself recognised the purpose of the expert determination under the terms of the lease was to determine the amount of compensation. The application described the dispute as:
“[The Trust] has exercised a landlord break option in a lease. This dispute relates to the calculation of the landlord break penalty payment under the lease which is calculated as 80% of the market value of the premises. The parties are unable to agree the market value of the premises.”
A copy of the lease was attached to the application.[36]On 14 February 2022 T&H sought to persuade RICS (copied to BB) to put on hold the appointment of an expert to allow the parties to seek to resolve the Special Purchaser issue:
“We submit that a pivotal consideration in the valuation exercise will be an understanding of the true meaning of the definition of market value to be applied. This definition is set out in the lease and is unique to it, rather than being incorporated by reference, from some other source. A critical element of the definition of market value to be applied will be consideration of the bid of a special purchaser: the lease’s definition of value does not exclude or restrict a special purchaser’s bid in any way. In this case, the existence of the lease in Newlon’s ownership represents an effective ransom against redevelopment of the subject property to a very substantial residential-led scheme adjacent Hampstead Heath – and the consequent marriage value to be obtained by extinguishing the lease, will we anticipate, be considerable by any standard. In our view, it is evident from the terms of the lease, that the parties to it intended that this realisation of value should be shared through the provided compensation mechanism. … there is a significant difference of opinion between the parties on what is principally a question of interpretation of lease terms and an application of the relevant law as to the operation of those terms - rather than at this point a difference of opinion over valuation methodology. … we ask as a preliminary, that the President of the RICS defer any decision as to an appointment, giving the parties to the lease the opportunity to seek to reach agreement on the meaning of the lease between themselves – and if that proves possible to achieve, then a further period in which a valuation could be mutually agreed between the parties.”
[37]This encapsulates the Special Purchaser issue and the Hope Value issue and highlights the dispute over the nature of the compensation provisions. BB did not agree to defer the appointment of the expert (they said there was no mechanism under the lease for doing so). On 17 February 2022 BB explained to RICS (copied to T&H) that they considered that “any unresolved points of law which arise in the determination can be dealt with by the expert instructing a legal assessor.” The Trust therefore expected any points of law to be determined within the framework of the expert determination.[38]RICS appointed Mr AP Harris LLM FRICS FCIArb on 1 March 2022 (“Mr Harris”). BB sent him a copy of the lease, the DOV, and the Termination Notice.[39]On 2 March 2022, Mr Harris set out his terms of engagement and asked the parties “if there is any dispute upon the interpretation of the lease or any other legal or technical matter” reserving the right to seek legal advice.[40]On 17 March 2022 BB confirmed to Mr Harris that they wanted him to determine the Special Purchaser issue under the terms of the lease. They explained to Mr Harris that:
“There is one legal point which requires determination. This is whether the bid of any special purchaser should be taken account of in arriving at market value. As you mention in your letter, this is something on which you may wish to consider seeking legal input, having first considered submissions on that point from the parties. I therefore suggest that an initial direction be given for submissions on that legal point.”
[41]On 28 March 2022 T&H agreed that there was a legal issue to be determined and again sought to pause the expert determination to allow the parties to seek to address the Special Purchaser issue outside the expert determination. Their letter largely repeated the text of the letter to RICS of 14 February 2022. They emphasised: …the pivotal consideration to the valuation exercise will be an understanding of the true meaning of the definition of market value to be applied… A critical element of the definition of market value to be applied will be the consideration of the bid of a special purchaser: the lease’s definition of value does not exclude or restrict a special purchaser’s bid in any way. …there is a significant difference of opinion between the parties on what is principally a question of interpretation of lease terms and an application of the relevant law as to the operation of those terms - rather than at this point a difference of opinion over valuation methodology. …we ask that you give the parties to the lease the opportunity to seek to reach agreement on the meaning of the lease between themselves – and if that proves possible to achieve, then a further period in which a valuation could be mutually agreed between the parties. … should this matter progress to a valuation without these issues having first been addressed, our client will not accept any limitation on your professional liability as an expert.”[42]Mr Harris proposed issuing directions in respect of the Special Purchaser issue and seeking advice from leading counsel. BB responded to Mr Harris on 29 March 2022 (copied to T&H) confirming that the Trust wanted to move forward with the determination on the Special Purchaser issue. BB and Mr Harris then corresponded (copied to T&H) about the directions he should issue.[43]Mr Sefton submits that Newlon should have understood that the Trust was seeking Mr Harris’s determination of the Special Purchaser issue and should have understood that the Trust understood that Newlon had agreed to the Trust’s proposal that Mr Harris determine the Special Purchaser issue. The Trust argues that the 29 March email can either be characterised as an offer as part of a separate free standing contractual agreement entered into between the parties by which Mr Harris was appointed to determine the special purchaser point or that it forms one of the building blocks for the Trust’s estoppel by convention or implied submission analysis.[44]Newlon agree that they understood that Mr Harris was going to determine the Special Purchaser issue but as an interim determination to allow him to progress the expert determination under the terms of the lease and not on a free-standing basis. The Trust had rejected Newlon’s proposal that it be addressed by a separate process outwith the lease. Newlon say that Mr Harris’s subsequent determination of the Special Purchaser issue falls away and is a contractual nullity because Mr Harris did not complete his expert determination and did not determine the Market Value or the amount payable under Option B. The parties are agreed that the contractual mechanism under the lease has failed.[45]On 31 March 2022 BB commented on Mr Harris’ draft directions:
“…I think there are some parts which can be omitted – assuming your intention is to issue further directions on valuation following determination of the initial legal issue? … It may be that a brief statement of agreed facts can be submitted in relation to the initial legal issue, so I have not deleted the requirement under “timetable” to submit a statement of agreed facts.”
[46]The Trust were proceeding on the basis that Mr Harris was going to provide an initial determination on the Special Purchaser issue before issuing further directions for the purposes of the expert determination under the terms of the lease.[47]Mr Harris’s directions of 1 April 2022 record that Mr Harris was following the procedure in the lease:
“2. I refer to the request dated 31 March 2022 by the landlord for me to proceed with the determination of a legal point which is whether the bid of any special purchaser should be taken account of in arriving at market value. This is to be taken as a preliminary issue. 3. I am required by the lease to take representations from the parties which should be made in accordance with the following procedure. … 28. My Determination will be in writing and will contain reasons… ”
[48]BB and T&H agreed a Statement of Agreed Facts in relation to the Special Purchaser issue as directed by Mr Harris on 14 April 2022. The Statement of Agreed Facts was entitled “Statement of agreed facts relating to the initial determination of a point of law” making it clear that it had been prepared for the purpose of an initial determination under the terms of the lease. It consists of 12 paragraphs. Paragraph 1 records that “This expert determination relates to a lease…” and then records the details of the lease again making it clear that the determination was part of the expert determination process pursuant to the lease. Paragraph 2 reads as follows:
“2. This statement of agreed facts relates to the determination of the following legal issue: Whether the bid of any special purchaser should be taken account of in arriving at Market Value under Schedule 1 of the Lease.”
[49]Paragraphs 3 to 11 provide some limited background and set out clauses 9(3), 9(5) and Schedule 1 Option B making it clear that the statement of agreed facts relates to a determination pursuant to the terms of the lease. Paragraph 12 then records:
“The parties have been unable to agree Market Value. The legal issue set out at paragraph 2 above is required to be determined in order that the Market Value can then be determined. ”
[50]The statement of agreed facts confirmed that the Special Purchaser issue had to be determined in order to enable Mr Harris to go on and determine Market Value but was clearly intended to form part of the expert determination under the lease. It was not free standing.[51]Mr John de Waal QC was appointed to assist Mr Harris. The parties filed submissions and counter submissions from Mr Sefton and Mr Holland in April and May 2022.[52]Mr Sefton argues that, by the latest on 24 May 2022 when T&H said, “The instruction of John de Waal QC is agreed, subject to our respective clients approving the fee quote following receipt of instructions,” a reasonable person in the Trust’s position would have understood that Newlon had agreed the Trust’s proposal that Mr Harris be instructed to determine the Special Purchaser issue. Mr Holland does not disagree. The difference between the parties is the status of that determination.[53]On 24 May 2022 BB wrote to Mr de Waal’s clerk copied to both Mr Harris and T&H making it clear that BB understood that the statement of agreed facts was to enable Mr de Waal to advise Mr Harris on an initial legal point – the Special Purchaser issue:
“…The expert surveyor appointed in the expert determination is Tony Harris of Eddisons (copied in). Mr de Waal’s instruction is agreed as between Royal Free and Newlon (subject to confirmation on fees) but is subject to Mr Harris’s confirmation. As discussed, Mr de Waal would be instructed by Mr Harris toadvise him in relation to an initial legal point which has arisen in the expert determination.”
[54]Mr Sefton seeks to characterise the 29 March 2022 correspondence as an “offer” and the 24 May 2022 correspondence from T&H as an “acceptance” amounting to a binding contract under which Mr Harris was appointed to determine the Special Purchase issue on a free-standing basis that survives the failure of the contractual machinery. He submits that this is consistent with an objective assessment of the factual chronology. Alternatively, that the 24 May 2022 correspondence was a building block for his estoppel argument. Consequently, the Trust argues that Mr Harris’s subsequent determination of the Special Purchaser issue is final and binding on the parties even though he did not determine Market Value or the amount of compensation payable under Option B and even though the contractual machinery has failed. Mr Sefton submits that the parties’ subsequent conduct was only consistent with that understanding.[55]Mr Holland submits that each of Mr Harris, the Trust, Newlon and indeed Mr de Waal understood that the determination of the Special Purchaser issue was simply an interim determination within the expert determination pursuant to the lease.[56]Mr Harris himself had confirmed to the parties that Mr de Waal’s role was to advise him and not to produce a decision which was final and binding and he recognised that the Special Purchaser issue was part of his expert determination under clause 9. There is nothing in the factual chronology and documents which provides any basis for concluding that Mr Harris had been appointed other than pursuant to the lease. It is clear that he considered that he was obtaining an opinion on the Special Purchaser issue in support of the expert determination and not separate to it. There is nothing about the factual chronology which appears to me to support a change in the characterisation of what Mr Harris had been appointed to do and was doing under the terms of the lease.[57]Mr de Waal’s opinion on the Special Purchaser issue is dated 6 June 2022. His opinion is short. At [15] he records that the O.E.D says that compensation means “to counterbalance, to make up for, make amends for.” He therefore opines that the purpose of Schedule 1 is to calculate a sum of money which gives something back to the tenant in cash to make up for the loss of its interest in the Premises. He notes Mr Sefton’s submission that had the Trust not exercised the break clause Newlon would not have been able to put the Premises to any other use and the benefit derived from the potential redevelopment was the Trust’s. He concludes therefore that taking into account the bid by a special purchaser would overcompensate Newlon. He does not appear to have considered the definition of compensation overall including Option A nor the full definition of Market Value agreed between the parties nor does he appear to take into account that the compensation was a discounted Market Value under Option B. He opines that his view is reinforced by the fact that the parties would have been aware of the RICS definition of Market Value which excludes special value. He rejects Mr Holland’s reliance on authorities concerned with valuation in a statutory context which do not necessarily exclude a special purchaser bid opining that the conclusions reached in those authorities cannot necessarily be read across.[58]He concluded:
“24.In my opinion therefore the answer to the question is that the bid of any special purchaser should not be taken into account when arriving at Market Value under Schedule 1 of the Lease. 25.I am fortified in my opinion by the fact that this conclusion is consistent with commercial common sense in that I consider that it would “over compensate” the Tenant, as I have put it, if the fact that the Landlord is the special purchaser were to be taken into account when calculating Market Value.”
[59]Mr Sefton argues that Mr Harris’ conduct and the conduct of the parties as they thereafter continued to progress the expert determination was only consistent with them accepting that Mr Harris had had the jurisdiction and mandate to determine the Special Purchaser issue and had done so. Newlon’s position is not that Mr Harris was unable to determine the Special Purchaser issue but that it was part of the expert determination that was not completed and not final and binding. They say that in any event it was wrong and any final determination which relied on it would have been challengeable.[60]On 31 August 2022, Mr Harris issued further directions for the determination of the Market Value under Schedule 1 of the lease and confirmed his determination of the preliminary issue. The determination was light on reasons (Mr Harris had simply adopted Mr de Waal’s conclusion):
“2. These directions relate to the expert determination of the Market Value under schedule 1 of the subject lease. 3. In arriving at the determination of the Market Value under schedule 1 of the lease I have determined that the bid of any special purchaser should not be taken into account…”
[61]The parties agreed a statement of facts for the “Valuation Determination” and exchanged valuation evidence. Mr Lee’s reports for the Trust are dated 7 October 2022 and 11 November 2022. Mr Cotterell’s reports for Newlon are dated 5 October 2022 and 9 November 2022.[62]Mr Lee’s position was reinforced by the Special Purchaser issue determination. He maintained that the Market Value was negative and so there was no compensation due to Newlon under Option B. Mr Cotterell considered that the Market Value was instead £27,380,000 and so Newlon were entitled to compensation of £21.904m (being 80% of £27.38m) under Option B. The difference continued to be primarily caused by the valuers’ different approaches to the redevelopment and marriage value. Mr Cotterell considered that even if the bid of a special purchaser was to be excluded there was still a marriage value to be taken into account which significantly affected the valuation (the Hope Value issue).[63]What emerged from the valuation evidence was the need for Mr Harris to seek further legal advice on issues including the Hope Value issue, and the Reprovision issue before going on to determine the Market Value and the compensation.[64]Mr Harris issued further directions on 24 January 2023. He sought a further opinion from Mr de Waal on the Hope Value issue and the Reprovision issue and an opinion from Morag Ellis KC on the various planning issues.[65]The parties filed submissions and counter submissions in February and March 2023. Mr de Waal’s further opinion is dated 31 March 2023, and Ms Ellis’ opinion was dated 6 April 2023. Ms Ellis’ opinion raised a number of issues on which the parties would require planning expert reports before submitting revised valuation reports.[66]On 24 April 2023 Mr Harris advised the parties that he no longer considered that the case was suitable for determination by a single valuation expert on written submissions but that it would require evidence to be tested by cross examination. He proposed that the parties agree to convert him to an arbitrator to provide a better framework for the dispute. His alternative proposal was that they confer on him immunity from legal action given the amount in dispute. The parties declined to agree to him becoming an arbitrator and were not prepared to give him immunity from suit.[67]Mr Harris indicated that he was minded to accept the advice of the two KCs. BB engaged with Mr Harris to draft directions in respect of the planning issues. These were broader than the Preliminary Issues going instead to the substance of the planning assumptions to be made for the purpose of assessing the Market Value. They may well be issues on which evidence will be needed in due course.[68]On 30 May 2023 T&H raised concerns about the way forward given Mr Harris’s position. They noted that “There is little point in incurring further costs at this stage if we cannot agree a way forward on this”.[69]The issues to be determined continued to expand and Mr Harris remained concerned that the dispute was not suitable for expert determination. He did not issue any further directions or determinations.[70]On 12 June 2023 following a call with the parties, he said that unless they agreed to appoint him as an arbitrator he would resign. The parties declined to do so. He resigned on 19 October 2023.[71]The parties’ subsequent attempts to replace Mr Harris and appoint another expert failed. In February 2025, RICS said they were unlikely to be able to identify someone suitable/prepared to accept the appointment with sufficient professional indemnity cover.[72]In the events that have occurred I have considerable sympathy with the position Mr Harris found himself in and his proposal.[73]Whilst the parties had chosen a contractual expert determination process one has to wonder why they persevered and continued to incur time and costs in doing so after October 2023. The difference between the parties is in excess of £20m, the claimant is an NHS Trust and the Defendant a charity and affordable social housing provider. In 2020 they were planning a strategic partnership to develop the Site to optimise their joint resources to provide improved health and housing outcomes for their community. Five years on that strategic partnership is nowhere to be seen with this dispute and the associated costs continuing.[74]On 24 April 2025 nearly five years after the Termination Notice had been served the Claimant issued this Part 8 claim by which they sought:
“(1) A declaration that the contractual machinery in clause 9 of the Lease for determining the compensation payable to the Defendant has broken down. (2) Directions be given for the court to determine the amount of any such compensation that is payable. …”
[75]The claim was supported by witness statements of Mark Robertson of BB dated 14 April 2025 and 7 December 2025. Paragraph 7(2) of the Particulars of Claim recorded:
“In June 2023, and before he had produced a determination, Mr Harris resigned as Independent Expert, saying that the dispute was not suitable for expert determination.”
[76]By its Acknowledgment of Service dated 15 May 2025 Newlon agreed that the contractual machinery under clause 9 had broken down and that there was a need for directions as sought by the Trust.[77]On 8 October 2025 and by consent the court directed that “The court shall determine the “Market Value” under Schedule 1 of the lease.” The parties identified four preliminary issues which they considered would need to be determined before the court would be able to determine Market Value.[78]The Preliminary Issues are matters of contractual interpretation and law. Preliminary Issue 1 concerns whether Mr Harris’ determination of the Special Purchaser issue survives the failure of the contractual mechanism and remains final and binding as the Trust argues. The main issue is its status; Preliminary Issue 1 therefore differs and is separate to the other preliminary issues which are focussed on the contractual interpretation of the definition of Market Value.[79]In respect of the other Preliminary Issues, the parties acknowledge that valuation is an art not a science but the difference in the valuations is significant. The Preliminary Issues may narrow the gap between the valuers and therefore have some utility.[80]However, whatever the outcome of the Preliminary Issues, determining Market value is going to involve consideration of the factual basis for many of the assumptions underpinning each valuers’ assessment. It seems likely that the expert valuation evidence will need to be tested by way of cross examination and/or “hot tubbing”. Depending on the nature of the assumptions other evidence may need to be more widely tested including for example the planning evidence that Mr Harris had intended to direct prior to his resignation. That will all need to be carefully considered to avoid a further false start. Preliminary Issue 1: 81. The Legal Principles[81]Expert determinations are often creatures of contract, and a lease is just a contract to be interpreted like any other contract. Expert determination clauses range in complexity and detail but the starting point and in most cases the end point when considering the scope of the expert’s role is the contract under which they were appointed. In this case the scope of Mr Harris’s appointment and consequently the extent of his jurisdiction and his mandate are governed by clauses 9(5) and 9(8) of the lease and Schedule 1.[82]In Barclays Bank plc v Nylon Capital LLP [2011] EWCA Civ 826 Thomas LJ distinguished between the “jurisdiction of the expert” to determine the dispute and the extent of the experts “mandate”. As he explained at [28] when considering the jurisdiction of the expert:
“The simple question is whether the dispute which has arisen between the parties is within the jurisdiction of the expert conferred by the expert determination clause or is not within it and is therefore within the jurisdiction of the English court. It is a question of construction with no presumption either way.”
[83]He then considered the question of the mandate and explains at [34] “The court will not generally intervene in a matter which is within the jurisdiction of the expert save in narrow circumstances circumscribed as a matter of contractual interpretation of such clauses. ” …an expert must none the less determine the issue referred to him in accordance with the mandate conferred upon him by the agreement; the scope of that mandate… is a question of law.”[84]In Great Dunmow Estates Ltd v Crest Nicholson Operations Ltd [2019] EWCA Civ 1683 Patten LJ at [28] explained:
“28. There is and cannot be any real dispute that the scope and nature of an expert’s jurisdiction is determined by the contract between the parties. They determine what the expert is to decide and have it within their power to agree that his decision on those matters should be final without recourse to the courts. The expert has no other source of authority and is unregulated in terms of his powers by statute. The scope of his remit and the finality of his decisions on matters within his authority are therefore dependent on the proper construction and terms of the contract which the parties have made. This includes the question whether that very issue of jurisdiction is itself a matter for the expert or one for the court to adjudicate upon.”
[85]If therefore the lease conferred jurisdiction on Mr Harris to determine a particular issue he can determine it within his mandate. If he does then, right or wrong, his decision is binding. However, if the question is whether he had jurisdiction to determine a particular issue in the first place then the question that arises is whether he had jurisdiction to determine his own jurisdiction. If the expert determines his own jurisdiction and then goes on to determine the relevant issue within his mandate, as he has determined it, the extent to which any decision by the expert is final and binding is more nuanced. There are therefore circumstances in which an expert’s determination which relies on the expert’s own determination of a jurisdiction issue which turns out to be wrong can be challenged and any decision based on such a determination would not be binding and final right or wrong.[86]In Premier Telecom Communications Group Ltd and anor v Webb [2014] EWCA Civ 994 Moore-Bick LJ summarised the principles applicable to challenging an expert determination at [8] and [9]: “The applicable principles 8. Having considered the leading authorities on challenging expert valuations, including Jones v Sherwood Computer Services Plc [1992] 1 W.L.R. 403, Nikko Hotels (UK) Ltd v MEPC Plc [1991] 2 EGLR 103, Pontsarn Investments Ltd v Kansallis-Osake-Pankki [1992] 1 EGLR 148, the dissenting judgment of Hoffmann L.J. in Mercury Communications Ltd v Director General of Telecommunications [1994] CLC 1125, Thorne v Courtier [2011] EWCA Civ 460 and Barclays Bank Plc v Nylon Capital LLP [2011] EWCA Civ 826, [2012] Bus. L.R. 542, the judge summarised the relevant principles in paragraph 40 of his judgment as follows: “40. Drawing the threads of the cases together, it seems to me that they support the following principles:(1) Where the parties have chosen to resolve an issue by the determination of an expert rather than by litigation or arbitration, the expert’s determination is final and binding unless it can be shown that he acted outside his remit.(2) A distinction must be drawn between the expert who has misunderstood or misapplied his mandate with the consequence that he has not embarked on the exercise which the parties agreed he should undertake, and the expert who has embarked on the right exercise but has made errors in conducting that exercise and has come up with what is arguably the wrong answer.(3) A failure of the first kind means that the determination is not binding because it is not a determination of the kind that the parties have contractually agreed should be binding.(4) A failure of the second kind does not invalidate the determination, but may leave the expert exposed to a claim in negligence.(5) In deciding whether an expert determination can be challenged, the first step is to construe his mandate. This is ultimately a matter for the court.(6) The second step is to ascertain whether the expert adhered to his mandate and embarked on the exercise he was engaged to conduct by asking himself the right question(s) and applying the correct principles.(7) Once it is shown that the expert departed from his instructions in a material respect, the court is not concerned with the effect of that departure on the result. The determination is not binding.(8) Where the expert has made an error on a point of law which is not delegated to him, the error means that the determination will be set aside. (It has yet to be decided whether an error by the expert on any point of law arising in the course of implementing his instructions will also justify setting aside the determination – see Lord Neuberger MR in Barclays Bank v Nylon Capital).(9) Where a procedure has been laid down (e.g. to produce a draft memorandum) the expert must follow it. However, what the procedure requires the expert to do is an aspect of the mandate, and ultimately a matter for the court.” 9. …I am content to accept them as a helpful summary. My only reservation concerns the suggestion that an error by the expert on any point of law arising in the course of implementing his instructions might justify setting aside the determination. The judge treated this as an open question on the basis of certain comments made by Lord Neuberger M.R. in Barclays Bank v Nylon Capital. It is necessary to remember, however, that those comments were obiter and that neither of the other members of the court expressed agreement with them. It is possible that the parties might by their agreement define the terms of the expert’s mandate in such a way that any error of law on his part rendered his decision invalid, but in many cases to do so would risk undermining the whole purpose of the reference. Ultimately, however, as Lord Denning observed in Campbell v Edwards [1976] 1 W.L.R. 403, 407 (and as Lord Neuberger himself was at pains to emphasise in Barclays Bank v Nylon Capital), it all comes down to the construction of the contract under which the expert was appointed to act. Only by construing the contract can one identify the matters that were referred for his decision, the meaning and effect of any special instructions and the extent to which his decisions on questions of law or mixed fact and law were intended to bind the parties.[87]In Campbell v Edwards [1976] 1WLR 403 one party had sought to argue that they should not be bound by a valuation undertaken by an expert valuer appointed for that purpose, Lord Denning explained at 407G:
“It is simply the law of contract. If two persons agree that the price of property should be fixed by a valuer on whom they agree, and he gives that valuation honestly and in good faith, they are bound by it. Even if he has made a mistake they are still bound by it. The reason is because they have agreed to be bound by it.”
[88]In Flowgroup plc (in liquidation) v Cooperative Energy Limited [2021] EWHC 344 (comm) Adrian Beltrami QC sitting as a High Court Judge was considering a dispute relating to an expert determination of working capital adjustments following a share sale. The seller was unhappy with the expert’s determination and sought to challenge it. The seller said that the expert had misconstrued the contract and made a determination founded on that mistake. At [26] the judge noted that it was ultimately for the court to determine the jurisdiction of an expert and the “the “real issue” was whether the expert should be free to determine his own jurisdiction in the first instance”. That then turns on a question of contractual interpretation – “the scope of the expert engagement”.[89]In Great Dunmow, the valuer expert had determined the Assumed Value of the Property on the basis of a valuation date that he had determined himself which was not the one that had been agreed between the parties as the basis on which the Assumed Value should be determined. The court had to consider whether the expert had jurisdiction to determine the valuation date himself or whether the agreement between the parties about the valuation date was contractual such that the determination of the Assumed Value by reference to a different date fell outside the expert’s jurisdiction to determine and outside their mandate. If it did, then the determination of the Assumed Value would not be final or binding on the parties and the court would have retained jurisdiction.[90]Patten LJ explained at [34] and [35] and then at [43]:
“34…The authority of the Valuer is to determine the Assumed Value at the correct date specified in clause 6.2.2; nothing else. And if the Valuer produces a valuation as at some other date he will not have carried out the terms of his appointment and his valuation will not be binding upon the parties. 35. There is nothing in terms in clause 6.2 which gives the Valuer the jurisdiction to determine what is the correct of the two alternative dates or to exclude the rights of the parties to refer that question of construction and therefore jurisdiction to the court.” “43. It seems to me that clause 6.2 clearly falls within the category of dispute resolution provisions which do not give the expert exclusive jurisdiction over the scope of his own authority and jurisdiction and which set out the approach and conditions which he must follow and comply with in order to produce a valuation binding on the parties. ”
[91]Lewison, The Interpretation of Contracts 7th Ed. considers the validity of an expert’s determination at 18.35 to 18.48. Having considered Great Dunmow at 18.44 and 18.45 the learned author explains: “The balance of authority now favours preservation of the court’s ability to rule on matters of contractual interpretation… “Where the contract contains instructions to the expert about his methodology, the parties will not be bound if he fails to follow that methodology in a material respect. In such circumstances the court is not concerned with the effect of the failure on the result. A material departure vitiates the decision.

The legal principles relating to estoppel:

[92]The Trust’s alternative argument is based on what is said to be Newlon’s implied submission to the expert determining the Special Purchaser issue on a binding and final basis and/or estoppel by convention as it applies to a third-party determination.[93]Kendall on Expert Determination at 11.2-4 explains that an argument might be advanced based on the principles of estoppel by convention:
“ A respondent to an arbitration may be held to have impliedly submitted to the jurisdiction of an arbitrator or to an extension of an arbitrator’s jurisdiction. ... This line of argument could be used as a defence to a challenge to an expert’s jurisdiction. The other party may be able to argue that ….the party disputing jurisdiction is precluded from denying that the expert has jurisdiction…”
[94]The authors of Kendall derive this proposition from Amalgamated Investment and Property Co v Texas Commercial International Bank [1982] QB 84 and the subsequent consideration of whether the principles of estoppel by convention or implied submission could apply in the context of an adjudication in Maymac Environmental Services Ltd v Faraday Building Services Ltd (2000) 75 Con LR 101.[95]In Maymac the unsuccessful party to an adjudication sought to argue that the adjudicator had had no jurisdiction to determine the particular issue because there was no concluded written contract between the parties as required by the Housing Grants Construction and Regeneration Act 1996. The issue had not been raised with the adjudicator at the time. HHJ Toulmin QC found that the respondent had agreed that the dispute should be referred to the adjudicator and in doing so had admitted that there was a contract and was consequently estopped from arguing the Act did not apply. He concluded either the referral had occurred under a contract, or the parties had submitted to the adjudication by agreement on the same terms.[96]It seemed to me that the better approach in this context and the modern approach to the law of estoppel by convention is as set out by Lord Burrows JSC in Tinkler v HMRC [2021] UKSC 39 and in particular at [45] to [53]. He affirmed at [53] that the principles to be applied in non-contractual estoppel by convention cases were correctly stated in Revenue and Customs Commissioners v Benchdollar Ltd [2009] EWHC 1310(Ch) as amended by Blindley Heath Investments Ltd v Bass [2015] EWCA Civ 1023. He stated albeit obiter at [78] that the same approach would apply in contractual cases: 45. Having referred to a number of the leading cases on estoppel by convention examined above, including The Indian Endurance, The Vistafjord and Keen v Holland, but not The August Leonhardt, Briggs J set out the following very important statement of principles at para 52:
“In my judgment, the principles applicable to the assertion of an estoppel by convention arising out of non-contractual dealings … are as follows. (i) It is not enough that the common assumption upon which the estoppel is based is merely understood by the parties in the same way. It must be expressly shared between them. (ii) The expression of the common assumption by the party alleged to be estopped must be such that he may properly be said to have assumed some element of responsibility for it, in the sense of conveying to the other party an understanding that he expected the other party to rely upon it. (iii) The person alleging the estoppel must in fact have relied upon the common assumption, to a sufficient extent, rather than merely upon his own independent view of the matter. (iv) That reliance must have occurred in connection with some subsequent mutual dealing between the parties. (v) Some detriment must thereby have been suffered by the person alleging the estoppel, or benefit thereby have been conferred upon the person alleged to be estopped, sufficient to make it unjust or unconscionable for the latter to assert the true legal (or factual) position.”
[97]Lord Burrows explained at [50] that the first Benchdollar principle was to be treated as supplemented by Blindley Heath such that the first principle required that “something must be shown to have crossed the line sufficient to manifest an assent to the assumption.”[98]At [78] he concluded:
“ “In my view, the five Benchdollar principles, with the Blindley Heath amendment to the first principle, comprise a correct statement of the law on estoppel by convention for contractual, as well as non-contractual, dealings.””
Discussion -

Preliminary Issue 1:

[99]I keep in mind the legal principles and the factual chronology set out above but do not repeat them.[100]If Mr Harris had determined the amount payable by way of compensation under Option B the parties agree that determination would be binding on the parties right or wrong subject only to the question of whether he had exceeded his jurisdiction in some way that allowed the determination to be challenged.[101]Mr Harris has not determined the amount of compensation payable to Newlon under Option B. He did not complete the expert determination he was appointed to undertake under the terms of the lease. The parties are agreed that the contractual mechanism has failed.[102]However, Mr Harris issued his determination on the Special Purchaser issue on 31 August 2022. That was the determination of a question of contractual interpretation about the scope of the exercise he had to undertake to determine Market Value. It has never been suggested by either party that Mr Harris did not have jurisdiction under the terms of clause 9 or his appointment to determine issues concerning his own jurisdiction.[103]Mr Sefton argues that(i) even though the contractual machinery under the lease had failed and(ii) Mr Harris had not made a final determination of the compensation payable under Option B, that Mr Harris’ determination of the Special Purchaser issue issued on 31 August 2022 was still binding on the parties. Consequently, it is the Trust’s position that in these proceedings the parties and the court are bound to determine Market Value on the basis of Mr Harris’s determination of the Special Purchaser issue. The effect of that would mean that when determining the Market Value and the amount of compensation payable under Option B the bid of any Special Purchaser should not be taken into account.[104]Mr Sefton argues that, properly construed, the parties’ conduct and the factual chronology demonstrate that the parties had agreed that Mr Harris was to determine the Special Purchaser issue outwith the expert determination under the lease such that it survives the failure of the contractual machinery. Alternatively, based on the same factual chronology, Newlon are estopped from now saying that the determination of the Special Purchaser issue is not binding and final. He argues that Newlon’s conduct had allowed the Trust to believe that they had agreed to Mr Harris determining the Special Purchaser issue on a final and binding basis.[105]Newlon accept that(i) Mr Harris did determine the Special Purchaser issue and(ii) the parties agreed to him doing so. However, they say that the determination of the Special Purchaser issue was simply part of expert determination under the lease which was never completed and consequently it is not binding or final. Instead, it is a contractual nullity.[106]Mr Holland argues that not only is it not binding but that it is not even admissible in these proceedings in which the parties are starting again. He submits that the Trust has even acknowledged that Mr Harris has not produced a determination under the lease in paragraph 7(2) of the Particulars of Claim and they agree that the contractual mechanism has failed.[107]Although I have considered Mr Sefton’s submissions carefully, and the evidence on which he relies in the context of the factual chronology set out above, I am not persuaded that there was any free-standing agreement outwith the lease by which Mr Harris was instructed to determine the Special Purchaser issue. The Trust, Newlon and Mr Harris all understood that Mr Harris was seeking an opinion from counsel for the purposes of issuing an interim determination on the Special Purchaser issue within the expert determination pursuant to the lease.[108]The Special Purchaser issue was described by the parties including the Trust variously (see above) as an “initial determination of a point of law” an “initial legal issue” and as a “preliminary issue” and always in the context of it being undertaken as part of Mr Harris’ appointment pursuant to the terms of the lease. None of the language of the parties or their correspondence is consistent with the argument now advanced by the Trust that Mr Harris had been appointed by the parties separately to determine the Special Purchaser issue.[109]The Trust had in fact roundly rejected the proposal that it be treated as a separate determination outwith the lease when it was proposed by Newlon on 3 February 2022 in favour of the Special Purchaser issue being determined as part of the expert determination process under the lease.[110]It is clear that the parties understood that the determination of the Special Purchaser issue was simply part of the expert determination and this is reinforced by Mr Harris’s subsequent conduct. By agreement he went on to seek further legal opinions to enable him to make further interim determinations to enable him to go on to determine the Market Value and the Option B compensation. Although those determinations were not issued there was nothing in the conduct of the parties at the time that suggested that any of the Trust, Newlon or Mr Harris were approaching those determinations any differently to the Special Purchaser issue. It was not in the contemplation of parties in 2022 that Mr Harris would not complete the expert determination.[111]There is no doubt that at the time the parties accepted that the determination of the Special Purchaser issue would form part of Mr Harris’ final determination of Market Value but that is not enough. It does not mean that the parties and Mr Harris had entered into a separate free-standing agreement that he determine the Special Purchaser issue and/or that such a determination would be final and binding for all time (see above).[112]The Trust’s after the event attempt to reconstruct the events of March to August 2022 simply does not stand up to scrutiny. It cannot turn the engagement between the parties and Mr Harris set out in the factual chronology into a separate free-standing agreement to determine the Special Purchaser issue. The attempt to re-characterise the correspondence and conduct of the parties in this way is not sustainable.[113]Mr Harris did not determine Market Value of the Premises and so did not determine the amount of compensation to be paid under Option B. I am not satisfied that there is anything in the evidence advanced by the Trust or the factual chronology that takes the Special Purchaser issue determination outwith the expert determination provisions in clause 9 of the lease. Nothing Mr Harris determined as part of that overall determination had any effect in isolation. It would not have mattered how many interim or preliminary determinations Mr Harris had made along the way. The only binding determination he was appointed to make under the lease was to determine the Option B compensation. Mr Harris did not complete that task and his interim or preliminary determinations made as part of that process are all contractual nullities.[114]Mr Sefton’s estoppel argument does not take him any further for broadly the same reasons. There is nothing in the factual chronology set out above that provides any support for it. There is no evidence of any common assumption that Mr Harris was being asked to determine anything outwith the terms of the lease. Newlon did agree to Mr Harris obtaining the initial legal advice and making an interim determination, but it goes no further.[115]The Trust needs to be able to demonstrate that there was some common assumption that crossed the line in terms of understanding between the Trust and Newlon that changed the parameters of the expert determination provisions such that there was a common understanding that whether or not Mr Harris completed the task for which he had been appointed under the terms of the lease, the determination of the Special Purchaser issue would continue to be binding on the parties. Mr Sefton did not identify any basis for saying that Newlon had acted in a manner that “manifested any assent to the assumption”. There is simply no evidential support for such a contention and that is hardly surprising since the parties and Mr Harris were proceeding on the basis that Mr Harris would complete his expert determination.[116]Following Mr Harris’ resignation, the Trust and Newlon found themselves in an unusual situation but that of itself points away from there being any facts or conduct or common assumption to support the argument that there was an estoppel by convention. It would not have been in the minds of either the Trust or Newlon that the contractual mechanism in the lease would not simply continue to its final conclusion with the determination of the Special Purchaser issue simply being a step along the way. This is supported by the factual chronology.[117]Mr Sefton criticises Newlon for not making their position clear earlier and/or for not simply going to court to seek a determination on the Special Purchaser issue earlier. But that is unfair. Not only was there no obligation or requirement for them to do so, but, like the Trust, they could not predict the future. Newlon may well have been rebuffed had they sought to challenge the interim determination in the court prior to any final determination. But in any event Newlon could not know what Mr Harris’ final determination on Market Value might be and whether notwithstanding, their views about the Special Purchaser issue, the final determination might be one which fell within an acceptable range. They considered that they had an alternative argument (the Hope Value issue) that would achieve broadly the same outcome. They certainly did not know that Mr Harris would resign, and the contractual mechanism would fail. That does not mean that Newlon misled the Trust or caused the Trust to act in a particular way and there is no factual evidence that the Trust did.[118]For those reasons I find that the parties are not bound by the determination of Mr Harris dated 31 August 2022 in determining Market Value under the lease.[119]Mr Holland’s alternative argument was based on an argument that even if the determination of the Special Purchaser issue were still binding it was based on an incorrect legal basis such that either it or any determination under the lease based on it would have remained challengeable (see Barclays Bank and Great Dunmow and Lewison above).[120]There is nothing in clause 9 which seeks to exclude the court’s jurisdiction to determine questions of jurisdiction or contractual interpretation. The issue is not whether Mr Harris had jurisdiction to determine the Special Purchaser issue – he did – but whether he had exclusive jurisdiction – he did not.[121]In the absence of the exclusion of the court’s jurisdiction under the terms of the lease that would have provided a route by which Newlon would have been able to challenge any final determination based on the alleged error in respect of the Special Purchaser issue (see Great Dunmow). Consequently, Newlon would still have been entitled to challenge the determination of the Special Purchaser issue on that basis in any event.[122]Mr Holland submits that just because Newlon did not refer the Special Purchaser issue to the court for determination in 2022 does not mean that they were barred from doing so now. Had Newlon rushed off to court in March/April 2022 they might well have been rebuffed on the basis their application was premature and/or any such application may have been opposed by the Trust for the same reason they opposed a separate determination of the Special Purchaser issue by a QC (see for example General Electric Co v AI Alpine Bidco Inc [2021] EWHC 45 (Ch)).[123]It seems to me that if the determination of the Special Purchaser issue were arguably based on an error of law that it would have been open to Newlon to challenge any final determination which relied on it. There may be many arguments to counter the challenge but those would have to be determined on their merits at the time. It must follow that if the expert determination for which the determination of the Special Purchaser issue were made is never finalised but the decision remained binding on the parties that it would remain open to Newlon to challenge that decision even if the contractual mechanism had failed if it were relied on for example in these proceedings. Of course, unless the Special Purchaser issue determination has some free standing binding effect it would fall away as a contractual nullity. Preliminary Issues 2 to 4 Preliminary Issue 2 (the Special Purchaser issue)125. If the Claimant and Defendant are not so bound, then: whether, in determining the Market Value under the Lease, the bid of any special purchaser should not be taken into account. Preliminary Issue 3 (the Hope Value issue)126. If the bid of any special purchaser should not be taken into account, then: whether or not the Defendant is nevertheless entitled to contend that the Market Value under the Lease can include a sum that is referable to the hypothetical purchaser’s hope of selling the Lease on to a special purchaser, namely the Claimant, for it to carry out a wholesale redevelopment of the site of which the demised premises under the Lease are a part.[124]The Special Purchaser Issue and the Hope Value issue cover substantially the same ground. Both are focussed on whether they are included or excluded from the valuation of the Premises under the definition set out in paragraph 5 of Schedule 1. These issues traverse well know issues of contractual construction whereas the Reprovision issue raises additional slightly different issues and is considered separately below.

Preliminary Issue 2 (the Special Purchaser issue)

[125]The definition of Market Value as set out in paragraph 5 of Schedule 1 which is set out in the context of the entirety of Schedule 1 at Annex 1 but which I repeat below for ease of understanding. “…the value of the Premises with vacant possession unencumbered by the Nomination Agreement but reflecting the lawful planning use and the potential for a change of use and any conditions/obligations likely to be attached to a consent” Legal Principles:

Preliminary Issue 3 (the Hope Value issue)

[126]The legal principles applicable to contractual interpretation apply to each of Preliminary Issues 2 to 4. The parties supplement those legal principles with ones focussed on the approach to be adopted when undertaking a valuation exercise based on a hypothetical transaction between a willing buyer and seller.[127]There are numerous authorities which seek to summarise the approach to contractual interpretation. A recent summary of the legal principles can be found in ABC Electrification Limited v Network Rail [2020] EWCA Civ 1645 at [17] to [19] which draws together the key principles relied on by the parties: 17. The well-known general principles of contractual construction are to be found in a series of recent cases, including Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900; Arnold v Britton and others [2015] UKSC 36; [2015] AC 1619 and Wood v Capita Insurance Services Ltd [2017] UKSC 24; [2017] AC 1173. 18. A simple distillation, so far as material for present purposes, can be set out uncontroversially as follows: i) When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. It does so by focussing on the meaning of the relevant words in their documentary, factual and commercial context. That meaning has to be assessed in the light of(i) the natural and ordinary meaning of the clause,(ii) any other relevant provisions of the contract,(iii) the overall purpose of the clause and the contract,(iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and(v) commercial common sense, but(vi) disregarding subjective evidence of any party's intentions; ii) The reliance placed in some cases on commercial common sense and surrounding circumstances should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision; iii) When it comes to considering the centrally relevant words to be interpreted, the clearer the natural meaning, the more difficult it is to justify departing from it. The less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning; iv) Commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made; v) While commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party; vi) When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time the contract was made, and which were known or reasonably available to both parties. 19. Thus the court is concerned to identify the intention of the parties by reference to what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. This is not a literalist exercise; the court must consider the contract as a whole and, depending on the nature, formality, and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning. The interpretative exercise is a unitary one involving an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences investigated.”[128]Even where the outcome appears unattractive or surprising, Lord Neuberger emphasised the limits and the parameters of the court’s role in rewriting or unravelling contracts in Arnold v Britton at [30] to [32]. The appellants argued that the alarming or extreme outcome of the respondents construction of the relevant clauses illustrated the unlikelihood of the parties having intended to agree to that outcome. Lord Neuberger was not persuaded, recording at [32] “Despite the unattractive consequences, particularly for a lessee holding a chalet under one of the 25 leases, I am unconvinced by this argument. It involves departing from the natural meaning of clause 3(2) in each of those leases, and it involves inserting words which are not there.” This seems to me to be particularly apposite in this case where the Trust argue that the unattractive consequences of Newlon’s approach to valuation based on their understanding of the definition of Market Value is to over compensate Newlon.[129]The recognition that the court will not interfere unless there is some proper basis for doing was reflected in Providence Building Services v Hexagon Housing [2026] UKSC 1. Lord Burrows JSC was considering the termination provisions of an industry standard form JCT contract where the allocation of risk between the parties on termination appeared asymmetrical. Lord Burrows agreed they were asymmetrical – that was a consequence of the drafting. He was not persuaded that contractual provisions should be symmetrical where the parties obligations were different. This reinforces the more general principle that if professionally advised parties agree a form of words and the allocation of contractual risk between them, the fact that it later becomes apparent that the language chosen has undesired consequences for one party is not a reason for the court to interfere. It is now well established that commercial common sense does not trump the primacy of the language in the contract.[130]Mr Sefton relies on Lord Hodge JSC’s speech in Wood v Capita at [10] and [13] which is encapsulated in the summary set out in ABC Electrification. He submits that the text in this case provides very little help to the court in trying to determine what was meant to be included in Market Value other than the clear use of the word compensation such that the outcome of the exercise should be to compensate Newlon not to permit them to obtain a ransom or excess profit.[131]He reminds me that when considering the text and the words, I must keep in mind that “the choice of term to be defined is relevant in interpreting a definition” (Anixter Ltd v Secretary of State for Transport [2020] EWCA Civ 43 and Lord Hoffman in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at [17] “The words used as labels are seldom arbitrary. They are usually chosen as a distillation of the meaning or purpose of a concept intended to be more precisely stated in the definition. In such cases the language of the defined expression may help to elucidate ambiguities in the definition or other parts of the agreement.”[132]Both parties sought to draw assistance from Lord Nicholls speech in Waters v Welsh Development Agency [2004] UKHL 19 a decision primarily focussed on compulsory purchase principles and Pointe Gourde/key value in the context of the Cardiff Bay barrier. Lord Nicholls at [15] to [19] explained that compensation was to be assessed by reference to the open market value of an asset involving a sale by a willing seller and an acquisition by a willing buyer but that the asset might have a special value to a particular type of buyer.[133]Whilst compensation would be based on a hypothetical transaction that considered value to owner not value to buyer, he explained the qualification to that general principle where the enhancement in value is solely attributable to the purpose for which the asset was being compulsorily acquired by a public body or statutory undertaker pursuant to the statutory compulsory purchase principles. In those cases, the value to the owner is considered when assessing value not the value to the buyer. The purpose of those principles enshrined in statute was to ensure fair compensation but not over compensation.[134]Mr Sefton sought to rely on those principles by analogy to reinforce his submission that compensation should be fair and necessary and reflect the event that had occurred and that it was likely that the parties would have intended the same standard of fairness to apply under the lease when assessing the compensation due to Newlon.[135]This reliance on, and attempt to read across, compulsory purchase principles of fairness into the contractual interpretation of a commercial lease involving commercial parties was in contrast to the Trust’s resistance to Mr Holland seeking to rely on a number of authorities, text books and statutes in which value to owner did not exclude the consideration of special value. Mr Holland relied on Waters more generally to support his argument that open market value could and, in many cases, did include any special value to the owner/seller.[136]The parties relied on the reality principle as explained by Lewison LJ in Harbinger Capital Partners v Caldwell [2013] EWCA Civ 492 in particular in respect of the Reprovision issue.[137]Harbinger concerned a poorly or rather perhaps quickly drafted expert determination provision following the collapse of Northern Rock. Lewison LJ explained that the courts have developed a well-established set of principles to apply where there is a requirement to ascertain a value by reference to a hypothetical transaction (whether contractual, as here, or statutory) at [22] and [23]: “22.There are many areas of the law in which an amount is to be ascertained by postulating a hypothetical transaction of one kind or another. Rating is perhaps the oldest example, for which purpose rateable value was measured by postulating the hypothetical grant of a tenancy from year to year. But hypothetical transactions abound in other areas of the law: for example compulsory acquisition, taxation and rent review clauses. Sometimes the hypothesis is statutory and sometimes it is contractual. The courts have developed a well-established set of principles that apply to both kinds of case. The most important of these is that things are to be taken as they are in reality on the valuation date, except to the extent that the instrument postulating the hypothetical transaction requires a departure from reality. In the old cases this is summarised in the Latin phrase rebus sic stantibus. In the more modern cases it has been described as the principle of reality: Hoare v National Trust (1998) 77 P & CR 366.” 23. The following points amplify the reality principle: i) The hypothesis is only a mechanism for enabling one to arrive at a value of particular property for a particular purpose.It does not entitle the valuer to depart from the real world further than the hypothesis compels: Hoare v National Trust, 380 (Schiemann LJ). The various hypotheses must be taken no further than their terms make strictly necessary: Cornwall Coast County Club v Cardgrange Ltd [1987] 1 EGLR 146, 152. It is necessary to adhere to reality subject only to giving full effect to the hypothesis: Hoare v National Trust, 387 (Peter Gibson LJ). ii) Giving effect to the hypothesis may require a legal impediment to the implementation of the hypothesis to be ignored or treated as overridden; but only to the extent necessary to enable the hypothesis to be effective: IRC v Crossman [1937] AC 26; The Law Land Company Ltd v Consumers’ Association Ltd [1980] 2 EGLR 109; Walton v IRC [1996] STC 98. iii) The world of make-believe should be kept as near as possible to reality: Trocette Property Co Ltd v GLC (1972) 28 P& CR 408, 420 (Lawton LJ); Hoare v National Trust, 386 (Peter Gibson LJ). Reality must be adhered to so far as possible: Cornwall Coast County Club v Cardgrange Ltd, 150 (Scott J). The valuer should depart from reality only when the hypothesis so requires: Hoare v National Trust, 388 (Peter Gibson LJ). iv) Where the hypothesis inevitably entails a particular consequence, the valuer must take that consequence into account: East End Dwellings Co Ltd v Finsbury BC [1952] AC 109, 132. v) But there is a clear distinction between hypotheses expressly directed to be made and assumptions allegedly consequential on the express hypotheses. Where the alleged consequence is not inevitable, but merely possible (or even probable), then the consequence cannot be assumed to have happened: Cornwall Coast County Club v Cardgrange Ltd, 149 (Scott J). vi) The reality principle applies as at the valuation date. Events which postdate the valuation date cannot generally be taken into account. But the purchaser will have regard to future possibilities, and it is his perception of the future possibilities that matters. There is, in this respect, a clear difference between events before and after the valuation date. What has happened before the valuation date is either known (because it really happened) or is required by the hypothesis to be assumed to have happened. But the future is unknowable. Assumptions about the future should not be made. Nor can a tribunal make findings of fact about the future. So all that a purchaser (and by extension a valuer) can do is assess the effect on current value of future possibilities.[138]Lewison LJ was in the minority on that occasion although he later referred to this passage in Mundy v Sloane Stanley Estate [2018] EWCA Civ 35 where he gave the judgment of the court. Mummery LJ’s explanation of the approach to the reality principle is instructive at [115] and [122] where he explains that it does not override established principles of construction. Whilst Harbinger was about statutory interpretation, as Lewison LJ had already explained, the reality principles where applicable apply equally to contractual provisions: 115. That result is consistent with the long-established approach to interpreting a statutory hypothesis. Assumed repayment of assistance on the valuation date may be properly described as an inevitable consequence of the hypothesis that, on 22 February 2008, all financial assistance “has been withdrawn.” As was famously said in East End Dwellings Co Ltd v. Finsbury BC [1952] AC 109,132-133:- “If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it…The statute says that you must imagine a certain state of affairs, it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.” “122. In this case my view is that the reality principle tells us no more about the Withdrawal Assumption than is gathered from its wording, as interpreted in accordance with established principles. The reality principle is only saying that departure from the real world must be no greater than is required by the statutory Withdrawal Assumption. If you are not required by statute to depart from reality, you must stick with reality. But the principle does not determine or limit what the statute commands us to assume contrary to reality. The statute determines that. The reality principle is about what is not covered by the statutory assumption. What does not have to be assumed is real and what is real can be the subject of evidence that may be relevant the application of the Withdrawal Assumption to the real facts. If, in consequence of the interpretation of s.5(4), a matter falls outside the ambit of the Withdrawal Assumption, then it is real world matter open to evidence and argument.” “If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it…The statute says that you must imagine a certain state of affairs, it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.”[139]Mr Sefton emphasised passages from the Cornwall case in particular the passages where Scott J considered the difference between reality and hypothesis and the distinction between “hypothetical assumptions directed by the language of the rent review provisions and … allegedly consequential assumptions which … must follow the former assumptions.” Mr Holland relied on the passages from East End Dwellings.[140]I consider each of the Special Purchaser issue, the Hope Value issue and the Reprovision issue with these authorities in mind. I also keep in mind the factual chronology set out above. Many of the submissions and the discussion in relation to the Special Purchaser issue and the Hope Value issue overlap.

Special Purchaser issue

[141]Mr Sefton’s arguments in substance are that the parties did not intend Newlon to benefit from the redevelopment when being compensated for the loss of their lease and that the definition of Market Value should be construed in that context. Consequently, the bid of a special purchaser and the hope of selling on to a special purchaser to take advantage of the redevelopment value are not to be taken into account. Doing so would over compensate Newlon and on a proper analysis that was not what was intended by the parties when they agreed the terms of the lease.[142]Mr Holland argues the contrary. He argues that the definition of Market Value is what it is and that there is no particular difficulty with the parties applying it. He does not accept that some constraint was intended or should be imposed on the construction to exclude the redevelopment value from the assessment of compensation. He does not accept that a valuation which allows Newlon as the tenant to benefit from some of the value attributable to the redevelopment through the bid of a special purchaser or hope value, results in over compensation – rather it simply provides compensation commensurate with what Newlon consider they are losing. And it is what the parties agreed.[143]Since Newlon essentially argues the definition is good enough and nothing needs to be read into it, I will focus on Mr Sefton’s arguments about why it is necessary to read into the definition an exclusion of the bid of a special purchaser and hope value.[144]Importantly, whatever the outcome of this determination it will not determine the Market Value or the amount of compensation to be paid under Option B. It may provide some more limiting framework within which the valuation is to take place. But whether the facts and assumptions that underpin the valuers valuations stand up to scrutiny will ultimately be a question for the judge determining Market Value.[145]The parties are agreed that the starting point is that the Market Valuation of the Premises is to be undertaken by reference to(i) a hypothetical transaction involving a willing buyer and seller and(ii) on the agreed valuation date and(iii) the value to the tenant as willing seller of its lease not the value to the buyer. Both parties accept that the parties intended that the amount payable under Option B calculated as 80% of the Market Value was intended to be compensation for what the tenant had lost as a consequence of the exercise of the break clause before the expiry of the term of the lease.[146]The Trust argues that as a matter of contractual interpretation when determining Market Value in respect of both the Special Purchaser issue and the Hope Value issue: i) The intention of the parties was that Market Value was the value of the lease to the market generally and not its special value to the Trust as a special purchaser. The value to the Trust of enhancing its opportunity to redevelop should be disregarded when calculating the compensation. ii) Consequently, neither did the parties intend that Market Value should take into account the amount a third party would pay for the lease by reference to what the Trust would pay that third party to acquire the lease. Any hope value or marriage value should be disregarded as they are tied to the Trust’s redevelopment opportunity.[147]The Reprovision issue raises slightly different considerations since in substance it concerns the application of the direction “unencumbered by the Nomination Agreement” in the valuation exercise. The Trust argues that the contractual interpretation of the Reprovision issue which they say only applies if the redevelopment value is to be taken into account is that: i) the valuer should assume that when providing vacant possession, the hypothetical seller in the position of Newlon would have to re-provide the accommodation provided by Newlon under the lease.[148]As set out above the lease itself restricted the ability of the Premises to be used other than for affordable housing and the Nomination Agreement further restricted the way in which the Premises could be used by the Trust. But the lease was entered into on the understanding that the Trust might want to break it early to enable it to redevelop the Site as a whole and included a break clause to enable them to do so. For the Trust there was value to being able to break the lease early to achieve that aim of redevelopment. The parties agreed a mechanism for determining the value of the compensation to be paid by the Trust if it chose to break the lease early and this is set out in Schedule 1.[149]However, the Trust argues that the Preliminary issues arise because the compensation provisions in Schedule 1 are insufficient for the valuer to understand the task he has been appointed to undertake. The lease does not adequately explain the nature of the hypothetical transaction. Consequently, they ask the court to interpret the provisions of Schedule 1 and in particular to consider the Special Purchaser issue and the Hope Value issue in their factual and commercial context.[150]Mr Sefton advances his submissions in respect of both the Special Purchaser issue and the Hope Value issue on three principal grounds: i) There is a well-recognised meaning and approach to determining Market Value which should be adopted and read into the definition of Market Value in Schedule 1; ii) The parties were likely to have intended that the compensation should be “fair” since anything else would over compensate Newlon; iii) The broader commercial picture should be considered importing into the exercise of contractual interpretation commercial common-sense.[151]Mr Sefton argues that a reasonable person having the same background and knowledge as the parties would not have understood the language of the lease to mean that Newlon were entitled to compensation on the basis that it had a ransom position enabling it to extract a share of the value of the Site. They did not intend Newlon to benefit from the bid of a Special Purchaser or the Hope Value of the Site as a whole and that is not the right basis for valuation in the counterfactual world. Compensation therefore should not take into account the Site’s special value to the Trust as a special purchaser.[152]He argued that Newlon’s approach to the hypothetical transaction wrongly considers value to the Trust or a third party as the buyer rather than focussing on value to the willing seller. Mr Sefton submits that value does not exist in the abstract and, when considering the hypothetical transaction, things are to be taken as they are in reality on the valuation date except to the extent that the valuation hypothesis requires you to do otherwise.[153]Newlon agree that when the lease was entered into there was future redevelopment value, that was the reason for the break clause. Newlon also accept that the valuation is a valuation by reference to the value of the lease to the tenant not the value to the Trust. However, Mr Holland submits that the bid of any special purchaser can and should be taken into account when determining Market Value and that such a bid is not excluded by the specifically negotiated definition of Market Value. They agree that the special purchaser would be the Landlord in a hypothetical transaction but argued that the Trust has more “hats”. The Landlord in the hypothetical transaction - that is the Trust in its capacity as Landlord and the freehold reversion of lease of the Premises which form part of the Site and as owner of the Site. Newlon submit that such a Landlord would be likely to pay a premium to terminate the lease and release the entire Site for redevelopment. Newlon argue that even if they are wrong and the bid of a special purchaser is to be disregarded that the prospect of marriage value is still a matter for the valuer to take into account and is not excluded by the definition of Market Value in the lease. Indeed, they argue that marriage value is an inherent part of the value to the tenant in the hypothetical transaction.[154]However, Newlon submits that the there is no need to interpret or construe the terms of paragraph 5 of Schedule 1. The parties agreed a definition of compensation and a definition for Market Value. They did not exclude special purchasers or marriage value. The valuer simply needs to apply the bespoke definition that the parties had agreed. Consequently, the consequences of redevelopment as encapsulated in the Special Purchaser issue or the Hope Value issue are not excluded from the exercise of determining the compensation payable to Newlon under Option B.

The Red Book

[155]Mr Sefton does not agree. He argues that the definition of Market Value does not provide the valuer with any guidance about what is meant by “value”. Consequently, the exact nature of the hypothetical transaction which the valuer is to undertake is a matter of inference to be collected from the factual and commercial context. He argues that value does not exist in the abstract but only in relation to a hypothetical transaction.[156]He submits that Market Value is a term of art in the sphere of property valuation with a long established well-recognised meaning. Consequently, both the parties and any valuer appointed under the terms of the lease by the President of RICS would have recognised the term Market Value to have a particular meaning. He accepts that the lease does not expressly incorporate a basis for the market valuation and does not specify that it should be by reference to the RICS Appraisal and Valuation Standards - a Red Book Valuation. However, he submits that an RICS valuer would understand that if they were being asked to determine Market Value pursuant to Schedule 1 that they were being asked to undertake a formal valuation by reference to the RICS Appraisal and Valuation Standards – and consequently a Red Book valuation.[157]He argues that a reasonable person asked at the time would have concluded that the parties had intended to adopt a Red Book valuation and that Market Value was shorthand for that broader definition. He does not explain why it was not included in the definition in the first place nor why another basis of assessing Market Value would not have been intended by the parties.[158]The 2003 Red Book defines market value at Chapter 3. PS 3.2:
“Valuations based on Market Value (MV) shall adopt the definition and the conceptual framework, settled by the International Valuation standards Committee Definition “The estimate amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing where in the parties had each acted knowledgeably, prudently and without compulsion””

Definition

[159]The guidance then explains what is meant by estimated amount and at PS 3.2.1 excludes any element of Special Value. Special Value is defined as “an amount above Market Value that reflects particular attributes of an asset that are only of value to a Special Purchaser.” Special Purchaser is also defined. Consequently, a valuation undertaken consistent with the 2003 Red Book would exclude any value attributable to the bid of a special purchaser.[160]Mr Sefton argues that by incorporating the Red Book valuation principles into Schedule 1 a RICS valuer would then understand that the valuation of the Premises meant compensation due to Newlon for what they had lost by the early termination of the lease and not by reference to any redevelopment value/the bid of a special purchaser. He submits that what Newlon have lost was simply the ability to use/rent out the bedsits on the second floor for those entitled under the Nomination Agreement and to receive payment for the same. Newlon have not lost a share in the future redevelopment. He argues that any mechanism that compensated Newlon by reference to the redevelopment potential would overcompensate them.[161]The Trust maintains that Newlon’s loss was limited to the ability to use /rent out the bedsits on the second floor of the Premises to those entitled under the Nomination Agreement. If the Trust had not terminated the lease, the value of the lease in Newlon’s hands was limited – they could assign with consent to another social housing provider, but they could not sell the lease on the open market, and its value was derived from the potential redevelopment by the Trust and/or the merger of the two interests. This seemed to me to make Mr Holland’s point for him. However, Mr Sefton argues that when one stands back and considers the position in the real world then it is obvious that there must be something wrong with Newlon’s approach if it allows them to share in the redevelopment value rather than compensating them for what they have lost.[162]He argues that the parties cannot have intended either the bid of a special purchaser or hope value to be taken into account since the purpose of the compensation was not to enrich Newlon for what the Trust was gaining. An outcome that construed the provisions of the lease and the definition of Market Value as assuming that any valuation would be on a Red Book basis would therefore be entirely consistent with that approach.[163]Mr Holland notes that despite the care with which the parties had engaged with Option A and its granular detail and definitions, the parties had not adopted any particular method by which the value of the Premises was to be calculated beyond the bespoke definition of Market Value they had chosen. They could have but had not adopted the Red Book and the court cannot assume that they intended to incorporate it by reference when there is no evidence that they did. He argues that there is no obligation to derive the value by any set form of calculation beyond the definition provided.[164]I have regard to the entirety of clause 9 and Schedule 1 when considering Mr Sefton’s argument. I note that whilst clause 9(5) provides for an RICS valuer that does not appear to me to provide a basis for importing into Schedule 1 and construing the definition of Market Value as intending and having always intended that the valuation would be a Red Book valuation.

Commercial Common Sense

[165]Mr Sefton argues that when establishing the intention of the parties in this case the background knowledge includes that(i) the Trust is an NHS Trust and(ii) Newlon is a social housing provider(iii) the Trust was outsourcing to Newlon its provision of accommodation for its nurses and key workers using the lease and Nomination Agreement(iv) there was a development opportunity for the Site(v) to accommodate that the break clause was included in the lease.[166]He argues that those factors support the import of a wider understanding and context for the determination of Market Value which he argues the parties would have had in mind and intended. Such an approach he argues is fair, necessary and appropriate. By this means it is appropriate to interpret the provision of compensation as excluding Newlon from receiving any benefit from the redevelopment. This requires the court to be satisfied that the concepts of fairness, commercial common-sense and reality are justified and weigh in favour of an interpretation or implication of terms as proposed by the Trust which would then allow the court to impose on the parties a Red Book valuation approach.[167]Mr Sefton supports this commercial common-sense, fairness or over compensation argument by reference to the original transaction. Newlon paid a premium of £843K based on the number of habitable rooms in 2005 but 13 years later in 2018, Mr Cotterell has assessed the Market Value of what Newlon are giving up as £27m a 4000% increase (Newlon would say that in addition and so far as relevant they had also paid for the refurbishment another £483K). Mr Sefton argues that this is obviously a “ransom” and not the value of what Newlon would lose as a consequence of the Trust exercising the break clause. He submits that it was staggeringly unlikely from a commercial perspective that it was intended that the compensation to be paid to Newlon would have the effect of creating a ransom in respect of the very development contemplated by the parties at the time the lease was entered into.[168]Mr Sefton further supports this argument on the basis that he argues that it was clear that Newlon understood that they were seeking to ransom the Trust. He relies on the T&H letter of 14 February 2022 (see above) which does refer to the lease creating an effective ransom. The same letter however also refers to Newlon’s understanding that the Trust’s position was that the parties were to share in the realisation of value - entirely consistent with the terms of the MOU.[169]At the date they entered into the lease the parties were, and they remain, well represented. The suite of documents entered into in 2005 including the lease and the Nomination Agreement and the subsequent DOV and MOU represent the culmination of negotiations between them. The lease and the Nomination Agreement are plainly substantial and complex formal contracts no doubt drafted by experienced solicitors on both sides. They are not “standard” documents but include obviously bespoke elements such as clause 9 and Schedule 1 of the lease and the Nomination Agreement itself. The Special Purchaser issue and the Hope Value issue have to be considered the context of the commercially negotiated lease between the Trust and Newlon where the allocation of risk and/or the balance of rights between the parties and the consequences of them will have been (or should have been) carefully calibrated.[170]The parties invested considerable effort in setting out in granular detail the process by which Option A compensation was to be calculated. By contrast they provided a short pithy definition of Market Value to enable Option B to be calculated. Schedule 1 and the definition of compensation and both Option A and Option B appear to be bespoke. The agreed mechanism for exercising the break clause and the quantification of compensation to be paid to the Newlon for the loss of their lease and even the definition of Market Value recognised that the redevelopment potential including a specific reference in the definition of Market Value to the potential for change of use. The definition of Market Value also recognised the current use of the Premises and the limitations placed on Newlon by the Nomination Agreement. Schedule 1 clearly involved some thought and some specific bespoke drafting.[171]The DOVs and the MOU post-date the Estimate and were entered into when the parties knew what Newlon considered to be the effect of the compensation provisions. They continued to engage in detailed negotiations about a strategic partnership. Although this was after the lease was entered into it supports Mr Holland’s submissions about the understanding and intention of the parties at the time the lease was entered into, and it cannot be entirely ignored.[172]The court should pay close regard to what the parties agreed, and the language chosen by them to express their agreement in 2005. It is not part of the court’s role when considering contractual interpretation to undo a bad bargain or to impose on the parties the court’s view. If well represented parties have reached an agreement and on reflection or with hindsight one party considers that they should have agreed something different or that that the language does not serve their interest or is being interpreted in a way they did not anticipate or expect that is not usually a question of contractual interpretation but rather “buyers regret”.[173]If the parties have agreed a contractual process that one party now considers to be divorced from commercial common sense or reality that does not mean that it does not reflect the terms of the contract they entered into. Neither Harbinger nor East End Dwellings go that far. Instead, they start from the rules of contractual interpretation and the proposed hypothetical transaction and the assumptions the parties have agreed to apply to that hypothetical transaction. If the consequences of applying the assumptions the parties have contractually agreed produce an unexpected result that may just be the inevitable consequence of these agreed assumptions. It is not a matter of contractual interpretation. Even if the consequences might “cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs”.[174]The definition of compensation in Schedule 1 included both Option A and Option B. The Trust had a free choice as to which basis of compensation they would choose. Compensation was however a defined term in Schedule 1 which then set out a detailed mechanism for its calculation. There is no need to imply into the definition anything beyond what is there and there is no need to interpret the provisions such that they include for example reference to the Red Book. That in the events that have occurred one party considers that the other party will be overcompensated by the output from the agreed mechanism seems to me to be an instance of buyers regret and not a proper basis on which to impose on the parties a different arrangement to the one they agreed. If the consequences of the carefully calibrated drafting are that the compensation is higher than one party anticipated, contractual interpretation seeking to import into the lease by reference a different definition to Market Value to the one the parties agreed is not the solution.[175]Further when considering the competing arguments about contractual construction it is important not to focus on just the definition of Market Value in paragraph 5 of Schedule 1 but to consider the entire mechanism that the parties agreed for the determination of compensation if the break clause was operated.[176]Clause 9 provides at 9(6) and 9(7) a process for agreeing an interim and final payment in relation to Option A. (I note that 9(7) wrongly refers to 9(5)). Schedule 1 then sets out a detailed process for undertaking the accounting exercise including definitions for the defined terms which make up the parts of the calculation required to assess Option A. One has a sense that perhaps Option B was added at a later stage in the drafting process since if 9(5), which incorporates Option B into Schedule 1, is removed the paragraph numbering works. Whether it was added later or not the difficulty that it is said to present is that unlike Option A it is said to be short on detail.[177]The Trust chose Option B. The definition of Option B includes the determination of Market Value. There is no dispute between the parties as to the nature of the hypothetical transaction which is to be valued in the counterfactual world of a willing seller and willing buyer. It is the assumptions which go into that assessment which are the issue.[178]The definition of Market Value in paragraph 5 assumes vacant possession but includes a direction to disregard the Nomination Agreement “unencumbered by the Nomination Agreement”. It further provides a list of matters the valuer is to reflect in their valuation including lawful planning use, the potential for change of use, and any conditions/obligations likely to be attached to a consent. The Market Value when calculated is then discounted back to 80% to provide the amount payable under Option B. Compensation is not therefore simply the Market Value of the Premises but a discounted value. Some thought has gone into the definition which is bespoke recognising the existence of the Nomination Agreement and the potential for redevelopment. It seems to me that it is a definition crafted to meet the circumstances the parties envisaged at the time they entered into the lease. Not only that but the parties had considered the consequences of the Market Value approach to compensation and agreed that in the circumstances there should be a discount. This seemed to me to be an important aspect of the calculation of the compensation under Option B and an important factor to consider in considering the questions of contractual interpretation. The focus on an argument that Market Value would over compensate did not appear to take into account sufficiently the agreed discount which appeared to reflect the parties having considered and reflected on the consequences of the definition they had chosen and adjusted it.[179]Mr Holland submits that Schedule 1 is specific to the lease and the relationship between the parties and takes into account the fact that Newlon was a social housing provider. Relevant to the Reprovision issue, he notes that the definition provides a range of assumptions to be reflected in any valuation that relate to any proposed redevelopment including for example change of use and conditions.[180]If the parties had already agreed a carefully calibrated approach that provided for a discount against what might be full Market Value as calculated by reference to the agreed definition, that would tend to militate against reading into the definition of Market Value additional considerations beyond the assumptions and disregards the parties had agreed.[181]The court should be slow to read in to the compensation provisions additional provisions or terms that the parties could easily have included had they wished to do so. One cannot simply assume that the provisions used by the parties were intended to be shorthand for something else that the parties did not include. The court should be particularly cautious about doing so when the consequences of doing so may be to change a carefully calibrated allocation of rights, obligations and risk. To do so would not be imposing on the parties commercial common sense but rather would be saving a particular party from a failure to think through the consequences of the terms to which they had agreed.[182]Where the parties have agreed bespoke terms for the determination of compensation under the lease I keep well in mind the advice of Lord Neuberger in Arnold v Britton at [17] "the reliance placed in some cases on commercial common sense and surrounding circumstances … should not be invoked to undervalue the importance of the language of the provision … the clearer the natural meaning the more difficult it is to justify departing from it."[183]It seems to me that if the parties intended the valuation to be by reference to the Red Book, they simply needed to say so. If they intended to exclude any value derived from the redevelopment, they simply needed to say so. If they had it in mind to make specific provision to address the consequences within the Market Value definition they could. Removing the current definition completely and replacing it with a Red Book valuation would have been a relatively simple thing to do even at a late stage in the drafting process in 2005. However, the evidence that can be gleaned from the drafting points away from that being their intention. The definition of Market Value includes specific requirements such as the direction about the Nomination Agreement which are bespoke. The parties had considered and drafted a bespoke definition which, in addition, provided for the discount back to 80% when determining the compensation payable under Option B. This is in contrast to Option A which is just a calculation of a sum with no discount. None of this suggests that the parties had not turned their minds to the drafting and had not drafted what they intended at the time in the common knowledge and understanding of the intention to redevelop and that being the purpose of the break clause. The drafting exercise to adapt the existing definition to incorporate both the specific directions and the Red Book would have required yet further consideration by the parties. It seems to me that simply reading in a Red Book valuation does not resolve the issues on how to undertake the valuation it simply changes the arguments. But the parties did not do that instead they created a bespoke definition.[184]Mr Holland agrees that the valuer would be valuing the tenant’s rights as willing seller of the lease. He agrees that the compensation is not about the value to the Trust. But he argues that there was nothing absurd, unreal or uncommercial about Newlon/the tenant as a willing seller, being compensated by way of a capital sum that allows them to replace the loss of the scarce affordable housing provision that the Premises provide. Newlon as an affordable social housing provider and a charity would prefer not to have to give up the lease which provides accommodation for 55 people who meet the criteria in the Nomination Agreement and are entitled to social housing. He argues that there is no reason not to compensate Newlon for what they are losing. The loss of the lease reduces the stock of social housing that Newlon have available. They are giving up valuable rights. He argues that the compensation provisions were not about extracting a ransom or some substantial sum of money but about providing compensation to enable Newlon to replace what it has lost. Agreeing a mechanism for compensation that would provide Newlon with the means to replace that scare affordable housing is not unfair, uncommercial, unreal or absurd. The idea that Newlon would therefore be able to and entitled to seek compensation that took into account the redevelopment value is not obviously wrong. To Newlon the value of the lease and the associated rights was greater than the sum of its parts.[185]He argues that the Trust had an unrestricted choice between Option A and Option B, it had the opportunity to ask questions and interrogate the information it had been given. It knew what Newlon said and why. The calculation of the sum due under Option A was intended to reflect the actual financial loss including a capitalisation of the future income stream with Newlon would lose. The parties had agreed that Option A included that future lost income stream on a capitalised basis which is not inconsistent with the parties agreeing a definition of Market Value for Option B that entitled Newlon to receive compensation by reference to the redevelopment value to compensate it by analogy for its loss of social housing into the future. Mr Holland submits that the fact that Option A was intended to provide compensation for the loss of the future income stream supports Newlon’s position. I agree.[186]Mr Sefton had explained that the Trust chose Option B because it considered that the effect of the discount rate as it applied in Option A would produce a higher figure for compensation and this was a direct consequence of the fact that Newlon were a social housing provider.[187]It seemed to me that the issue that the Trust identified about Option A further supported Mr Holland’s interpretation of Option B. The parties agreed Option A in the knowledge that Newlon were a social housing provider. Therefore, either the parties intended that Option A should be calculated on that basis or at least one of the parties did not think about the consequences hard enough. Although, as Lord Burrows explained in Providence,the fact of asymmetrical provisions may not mean that the drafting has gone wrong – the very fact that the calculations in the Estimate Notice for Option A and Option B fall within the same broad ball park seems to me to militate against Mr Sefton’s arguments in this case particularly where those asymmetric outcomes are between two compensation provisions aimed at the same thing. The parties agreed that Newlon would receive compensation for the loss of its lease. It is vanishingly unlikely that at the time if asked the parties would have considered that they were agreeing to compensation provisions which on one calculation produced a positive compensation payment and on the other no compensation at all for the loss of the balance of the term of a 99-year lease entered into in 2005. If the Trust now considers that Option A (and Option B as Newlon understand it) produce compensation that is too high that does not mean that at the time the lease was entered into that was not what was intended and/or not what Newlon intended when agreeing to the terms.[188]The Trust chose Option B believing that it would produce a lower level of compensation – it does not mean Option B must be lower. From Newlon’s perspective Option A and Option B produced similar outcomes which would seem to be more consistent with a carefully negotiated lease and compensation provisions and much more likely to reflect commercial common-sense and reality. Mr Holland argues that it is at least as unfair, unreal and lacking in commercial reality to suggest that the compensation to be paid to Newlon would be nil.[189]Standing back, it seems to me that if one is considering common sense or reality as argued by the Trust that it would be an unusual drafting outcome for the parties to have agreed asymmetric compensation provisions for payment of compensation to the same party which on the one hand provided for compensation of in excess of £20m and on the other produced no compensation at all. Indeed, the lack of commercial common sense and reality and fairness in that proposition would militate against a construction of the lease terms that produced that outcome without the clearest evidence of the parties’ intentions. It certainly cannot be read into the definition of compensation or Market Value in this case.[190]It seems to me that this may be one of those situations where neither of the parties may have properly turned their minds to the consequences of the terms they agreed for the break clause and Schedule 1 in 2005. The fact that 13 years later the figures produced are very significant and both appear to be in excess of £20m does not mean that it was not what they agreed to at the time.

Fairness

[191]I was not persuaded by Mr Sefton’s further arguments that I should by analogy apply the principles of “fairness” to be derived from compulsory purchase principles to address what he considered to be over compensation. He argued that exactly the same concept of fairness could be applied in this type of situation.[192]Where compulsory purchase principles are engaged, normal valuation principles are varied such that the valuation is assessed on the basis of the value to owner not the value to the purchaser unless the owner holds the key value. This is not a statutory compulsory purchase case. The Trust are an NHS Trust but do not have the same rights or protections from the commercial realities of life as a public authority. A public authority seeking to compulsorily purchase the Premises to develop the Site would have additional powers to moderate the compensation it had to pay subject to the issue of whether the seller/owner held the key value. I do not consider one can superimpose on this transaction the broader principles to be derived from the compulsory purchase authorities. Here the parties accept that the hypothetical transaction should be by reference to a willing seller and a willing buyer – but with the focus on the value to the tenant - by its very nature a valuation on that basis would moderate the approach adopted by a valuer.[193]I was not persuaded that the principles applicable to compulsory purchases by public authorities which moderated the expectations of the parties in terms of valuation were of any assistance to construing the terms of the lease and the meaning of Market value in that context. This was a commercial transaction involving parties who agreed a bespoke compensation provision. The fact that it involves the NHS and social housing provider does not change that. The Trust thought that by choosing Option B it would be able to limit the compensation it had to pay and it may be that they cannot. As I say that does not mean that the compensation provisions are not what they agreed at the time.[194]For the reasons set out above I am not persuaded that the bid of a Special Purchaser is excluded from the assessment of Market Value under Option B as a matter of contractual interpretation. It is an entirely different question whether as a matter of fact the assumptions made in any valuation exercise can be justified and supported. And of course, the hypothetical transaction is about value to owner/seller.

Hope Value issue:

[195]Mr Sefton’s arguments in relation to the Hope Value issue reflected the arguments he had advanced in relation to the Special Purchaser issue – the court should interpret the definition of Market Value and read into it an intention that any valuation would be a Red Book valuation and/or should exclude such Hope Value on the basis of fairness.[196]So far as the Hope Value issue is concerned the position in relation to the Red Book is rather different and it seems to me even less supportive of the Trust’s position. The current version of the Red Book provides an explanation of market value in Chapter 4. This makes it even clearer that a Red Book valuation would usually disregard price distortions caused by special value or what it describes as synergistic value (marriage value).[197]However, it also recognises the possibility of reflecting an expectation of a change in circumstances often colloquially referred to as hope value. At 4.4 explaining: “Notwithstanding the disregard of special value, where the price offered by prospective buyers generally in the market would reflect an expectation of a change in the circumstances of the asset in the future, the impact of that expectation is reflected in market value. Examples of where the expectation of additional value being created or obtained in the future may have an impact on the market value include:• The prospect of development where there is no current permission for that development• The prospect of synergistic value/marriage value arising from a merger with another property or asset, or interests within the same property or asset at a future date.• The prospect of development where there is no current permission for that development• The prospect of synergistic value/marriage value arising from a merger with another property or asset, or interests within the same property or asset at a future date.[198]I note that Mr de Waal in his second opinion accepted that in relation to the Hope Value issue the Red Book made provision for it but concluded it would still over-compensate Newlon and therefore rejected Newlon’s arguments on that basis rather than that it was not something that could be taken into account as a matter of valuation.[199]I agree with Mr Holland that if Mr Sefton were right that the court should read into the definition of Market Value that it is to be a Red Book valuation then Newlon would get the benefit of paragraph 4.4. It did not seem to me to be appropriate to pick and choose between which parts of the Red Book should be applied. It appeared to me to undermine the argument that the parties had intended the valuation to be on a Red Book basis. It appeared to support the intention not to do so and to have a bespoke definition.[200]If I am right about that then it would appear to make the entire exercise academic from the Trust’s perspective as it appears to me that it will bring back into account at least some of the value associated with the redevelopment that the Trust seek to exclude by the Special Purchaser issue. The Hope Value issue therefore either entitles the valuer to take it into account by the nature of the existing definition or entitles the valuer to take it into account by reason of a Red Book valuation which the Trust wants to have read into the definition as a matter of commercial common-sense.[201]For all the same reasons that I have already concluded that, as a matter of contractual interpretation, there is no basis for excluding the bid of a special purchaser by reading into the definition of Market Value that the valuation should be undertaken on a Red Book basis and/or as a matter of commercial common-sense – thus there is no reason to exclude the consideration of the Hope Value issues.[202]This is however, always on the basis that the valuer is nonetheless valuing what has been lost by the tenant in the hypothetical transaction. Whether the assumptions made by either valuer are sustainable will be determined at the next stage. Preliminary Issue 4 - the Reprovision issue: 206. Whether or not the assumption of vacant possession in the definition of Market Value combined with the direction to assume that the Premises are unencumbered by the Nomination Agreement means, as the Defendant asserts, that the valuation is to be made on the basis that the hypothetical vendor is not obliged to provide alternative accommodation at a different site to replace the accommodation at the demised premises.[203]In closing an issue arose about precisely what the Reprovision issue meant. Mr Holland’s submissions had focussed not just on the part of the definition relating to vacant possession but on the how that was to be interpreted having regard to the direction that it was to be unencumbered by the Nomination Agreement. The Reprovision issue as Mr Sefton understood it to be amended is set out above. Mr Sefton asked for an opportunity to advance further submissions on the Reprovision issue on that basis. I received short additional submissions from both counsel for which I am grateful. They do not change the substance of the arguments on the Reprovision issue.[204]In relation to the Reprovision issue as set out above in addition to the more general contractual interpretation issues the parties relied on the reality principle set out in Harbinger. Mr Sefton drew support from Scott J in Cornwall v Cardgrange.[205]The Reprovision issue arises because I have found that the redevelopment cannot be ignored when undertaking the valuation exercise to determine the compensation due to Newlon under Option B.

Preliminary Issue 4 - the Reprovision issue:

[206]Although I heard detailed submissions from both Mr Sefton and Mr Holland on the Reprovision issue it seemed to me that, in essence, it was about what “unencumbered by the Nomination Agreement” meant and when and how it should be brought into account as part of the valuation process.[207]Despite the reliance on Harbinger and other authorities, there was not in fact any particular difference between Mr Sefton and Mr Holland about what vacant possession would mean for the purposes of a hypothetical transaction in the normal course but rather what the direction “unencumbered by the Nomination Agreement” meant and how that interacted with the assumption of vacant possession at the valuation date.[208]The parties agree that for the purposes of the hypothetical transaction, a vacant possession assumption without reference to the Nomination Agreement would assume that the Premises would be vacant at the valuation date but that prior to the valuation date they had been occupied and used in the way they had been used in reality.[209]Thereafter the parties approaches diverge and particularly relevant to that divergence are the assumptions they make both about the Nomination Agreement direction but also to how the LBC pre-planning indication from 2017 should be approached.[210]It seemed to me that the arguments in relation to the Reprovision issue conflated those issues which were strictly issues of interpretation with those which were issues to be determined in due course as matters of evidence and fact. There was then what appeared to be to be a further conflation between the Nomination Agreement and the terms of the lease.[211]Mr Holland submits that the direction that the Premises should be unencumbered by the Nomination Agreement was intended to have the following effect: i) To remove any restrictions as to the class of persons who can occupy the premises and the level of rent imposed by the Nomination Agreement and any associated restrictions in the lease; ii) to ensure that the valuation excluded from consideration the fact that the Premises are or have been occupied by NHS staff; iii) to ensure any change of use is fully taken into account.[212]These assumptions would change the more usual understanding of vacant possession on the valuation date. Mr Holland argues that the valuer should ignore the restrictions placed on Newlon by the Nomination Agreement and the lease (as a consequence of the Nomination Agreement direction) and should assume that all the NHS staff had already left and consequently that any potential requirement to re-provide for the Trust’s staff as indicated in the LBC in principle indication could be ignored. This did not appear to me to flow from the vacant possession or Nomination Agreement valuation issues.[213]He argues this is the only way to apply the direction to value “unencumbered by the Nomination Agreement”. One has to excise the existence of it and assume it was never in place. One creates a hypothetical transaction without any reference to social housing or social housing providers and the valuation is undertaken on that basis.[214]On that basis the valuer does not need to assume that any accommodation would need to be re-provided because the definition of Market Value assumes that the value of the Premises is unencumbered by the Nomination Agreement which is the basis on which the use of the Premises is restricted to affordable social housing. Mr Holland therefore argues that, on the definition of Market Value included in Schedule 1, the valuation exercise should assume that the social housing tenants have gone because the Nomination Agreement should be ignored.[215]To achieve this outcome, he treats the lease in this hypothetical transaction as having been amended to exclude the restrictions on assignment to social housing providers. He submits that the effect of the definition is to remove any restrictions in the lease which are related to the Nomination Agreement because otherwise the valuation is not unencumbered by the Nomination Agreement.[216]I was not persuaded by Mr Holland’s approach. It seemed to me that the Nomination Agreement is an agreement that provides the Trust with certain rights to nominate staff to be accommodated in the Premises on specific rents. If the valuation is unencumbered by the Nomination Agreement the encumbrance is the limitation provided by the Trust’s ability to nominate specific tenants in priority to Newlon tenants and to limit what rent can be charged to that set out in the Nomination Agreement. It does not go further.[217]If the value of the lease to Newlon is no longer encumbered by the Nomination Agreement it does not remove the restrictions in the lease in relation to social housing provision. Those are not a consequence of the Nomination Agreement which has a different function. The Nomination Agreement was about outsourcing the accommodation provision for the Trust’s staff. I do not accept that the tenant in the hypothetical transaction can be assumed to have a lease that is entirely free of restrictions without the clearest words. Whilst the reality principle might be seen to supplement arguments on commercial common sense neither permits the contractual terms to be rewritten as a matter of course.[218]I do not agree with Mr Holland that the effect of the direction that the valuer is to treat the valuation as unencumbered by the Nomination Agreement as meaning that the Nomination Agreement is excised from the history of the Premises and the valuation is carried out on the basis that it never existed at all.[219]It seemed to me this reflected the wrong approach and the one Scott J cautioned about in Cornwall v Cardgrange when explaining the difference between reality and hypothesis and the distinction between “hypothetical assumptions directed by the language of the rent review provisions and … allegedly consequential assumptions which … must follow the former assumptions. Here it seemed to me that the assumption that the Nomination Agreement had never existed or that the Premises were occupied other than for the purposes of providing social affordable housing fell outside the range of assumptions directed at the language of the definition. It went too far.[220]I agree with Mr Sefton that the counterfactual assumption for the purposes of the hypothetical transaction is simply that Newlon/the hypothetical willing seller is not bound by the Nomination Agreement.[221]As Mr Sefton submitted Mr Holland’s additional assumptions about the lease and indeed reprovision were not necessary assumptions or necessary consequences of the assumption that the hypothetical transaction was on the basis that the lease was unencumbered by the Nomination Agreement.[222]The Reprovision issue is in fact focussed on whether the valuer has to assume for the purposes of ascertaining Market Value that the social housing provision would have to be re-provided. Whilst this was couched in terms of how to approach the vacant possession issue and the Nomination Agreement the question of reprovision does not arise out of those arguments advanced in relation to how the valuer should approach vacant possession with or without the Nomination Agreement. The determination of the Reprovision issue as formulated is therefore premature since it seems to me that the question of reprovision arises under a different part of the definition of Market Value.[223]When LBC provided a pre-planning indication in 2017 it was considering a pre-planning application in relation to two sites owned by the Trust. Their pre-planning indication was that they would expect any planning consent to require reprovision of the existing social housing provision at the Premises separate to any calculation of affordable housing provision.[224]It seems to me that it is not possible to determine whether it is a reasonable assume in undertaking the valuation of the Premises that LBC are likely to require a developer to re-provide the affordable housing. It will be a question of fact not law.[225]Mr Sefton’s approach to the Reprovision issue seems to me to be the correct approach. The assumption that the hypothetical transaction is unencumbered by the Nomination Agreement does not excise the existence in the past of the use of the Premises for social housing nor does it excise from the lease the restrictions on the assignment and consequent use of the Premises other than for social housing without consent. I accept that those provisions may affect value but that does not mean that the Nomination Agreement assumption or direction can do more heavy lifting than the definition requires in reality.[226]The valuer should adopt the usual assumptions in relation to vacant possession such that(i) the Premises were used in the past in the way they were actually used in the past;(ii) they are vacant on the valuation date but(iii) to give effect to the additional assumption the valuer should assume that the willing buyer in any hypothetical transaction is unencumbered by the Nomination Agreement such that any positive or negative effect it might have on value is ignored.[227]There is no requirement for the valuer at that stage in the process to make any assumption about re-provision. The effect of the above assumptions is to neutralise the effect of the Nomination Agreement.[228]The definition of Market Value then provides for the valuation of the Premises to reflect lawful planning use and the potential for a change of use and any conditions/obligations likely to be attached to a consent. As part of the valuation exercise the question of what conditions or obligations LBC might impose including whether it would require that the social housing provision be re-provided in addition to providing for affordable housing should be considered at that stage in the process. It is very likely that the parties will continue to adopt opposing views of whether LBC will require reprovision and that will then be determined on the facts and on the basis of evidence when the question of Market Value is finally determined. It is not a question of contractual interpretation or even law or at least not the law with which this judgment has been concerned.[229]This judgment says nothing about the ultimate Market Value or the amount of compensation payable under Option B. It provides a determination of four issues of construction which will affect the approach to the valuation but will not determine it. Just because a particular assumption is available as a consequence of this decision when determining Market Value does not mean that it will be supportable on the evidence.[230]It may be that armed with this determination Mr Lee and Mr Cotterell can revisit their respective valuations and the parties will be able to reach an accommodation. If the parties consider that is realistic then it may be appropriate for there to be a stay of the proceedings.[231]But otherwise, it seems to me that the sensible course is for the claim to be listed for a directions hearing to consider directions for the future conduct of the claim to determination.