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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Homebase Ltd v. Scottish Provident Institution [2003] ScotCS 173 (13 June 2003)
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Cite as: 2004 SCLR 44, [2003] ScotCS 173
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Homebase Ltd v. Scottish Provident Institution [2003] ScotCS 173 (13 June 2003)

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Marnoch

Lord Macfadyen

Lord Abernethy

 

 

 

 

 

XA115/02

OPINION OF THE COURT

delivered by LORD MACFADYEN

in the

CASE FOR THE OPINION OF THE COURT OF SESSION

under

the Administration of Justice (Scotland) Act 1972, section 3

between

HOMEBASE LIMITED

First Party;

against

SCOTTISH PROVIDENT INSTITUTION

Second Party:

_______

 

 

Act: Martin, Q.C.; Biggart Baillie (First Party)

Alt: Cullen, Q.C.; Shepherd & Wedderburn (Second Party)

13 June 2003

Introduction

[1]      The Scottish Provident Institution and Homebase Limited are respectively the landlord and the tenant of warehouse premises situated at Discovery Quay, Riverside Drive, Dundee. The lease (Part 1 of the Appendix to the Stated Case) was entered into in 1990. It contains provision for quinquennial rent review, and the parties are agreed that 8 October 2000 was a date of review within the meaning of that provision. The parties were, however, unable to agree upon the revised rent to be paid after that date, and the matter was therefore submitted to arbitration.

[2]      The parties invited the arbiter to determine a preliminary question of law. They formulated that question in the following terms:

"Whether the valuation of the market rent of the Premises in accordance with Schedule Part V of the Lease ... should be based upon unrestricted non-food retail use in terms of Class 1 of the Schedule to the Town and Country Planning (Use Classes) (Scotland) Order 1997 (SI 1997 3061) being permitted within the Premises or upon the non-food retail use permitted being restricted to the sale of a range of goods normally retailed in DIY outlets, including garden centre with sales related thereto".

 [3]      The parties each made written submissions on that question (Parts 2 and 3 of the Appendix), and thereafter oral submissions were made at a hearing (the arbiter's minute of which is Part 4 of the Appendix). The arbiter issued a draft award (Part 5 of the Appendix) in which he proposed to answer the question in the landlord's favour, that is, to hold that the valuation should be carried out on the first of the two bases formulated in the agreed question. The tenant requested that the arbiter state a case for the opinion of this court under section 3 of the Administration of Justice (Scotland) Act 1972. The arbiter duly did so. It is convenient to defer setting out the terms of the questions which the arbiter stated for the opinion of the court until later in this Opinion.

The relevant provisions of the lease

[4]      In terms of clause 2 of the lease the tenant bound itself to pay the stated yearly rent "or such higher yearly rent as may be substituted therefor in terms of the Schedule Part V".

[5]      In paragraph (1) of the Schedule Part V it is provided that at the dates of review therein identified the yearly rent should be reviewed "and thereafter shall be an amount (... 'the revised rent') which shall, subject to paragraph (4) of this Part of the Schedule [which provides for 'upwards only' review], represent the market rent of the Premises at each date of review".

[6]      Paragraph (2) of the Schedule Part V sets out the approach to valuation which is to be adopted in determining the revised rent at each date of review. It provides inter alia as follows:

 

"Valuation

The market rent of the Premises at each date of review shall be such amount as may be agreed between the Landlord and the Tenant or determined in accordance with paragraph (3) of this Part of the Schedule [which sets out the arbitration procedure] as representing the rent at which the premises might reasonably be expected to be let at the date of review as a whole for a period of years equal to whichever is the longer at the relevant date of review of the unexpired Period of this Lease or ten years on the open market as between a willing landlord and a willing tenant without payment of grassum or premium with vacant possession and upon the supposition (if not a fact)
 

(a)

that all parts of the Premises are then available for use for the purposes herein permitted;
 

(b)

that the Landlord and the Tenant have complied with all the obligations imposed on them respectively under These Presents (but without prejudice to any rights of either party in regard thereto);
 

and taking no account of:-

 

[five numbered considerations which need not, for present purposes, be quoted in full];
 

but in all other respects on the terms and conditions of These Presents (other than as to the amount of rent but including the provisions for five yearly rent reviews herein contained)."
[7]      Clause 3 of the lease sets out the obligations undertaken by the tenant. Clause 3.2 is in the following terms:

"As to user

Not to use or permit the Premises to be used except as a non-food retail warehouse for any use falling within Class 1 of the Schedule to the Town and Country Planning (Use Classes) (Scotland) Order 1989 (with ancillary stores and offices) together with car parking, servicing and landscaping or for such other purpose or purposes as shall have been approved in writing by the Landlord which approval shall not be unreasonably withheld or delayed in the case of a use within section 74 of the Finance Act 1980 and subject always to the provisions of paragraph (15) of the Schedule Part III."

Class 1 of the Schedule to the Use Classes Order 1989, referred to in paragraph 3.2, has been superseded by Class 1 of the Schedule to the Town and Country Planning (Use Classes) (Scotland) Order 1997, which is referred to in the preliminary question put to the arbiter. Section 74 of the Finance Act 1980 relates to the construction of buildings in an Enterprise Zone, and is not relevant for present purposes. Paragraph (15) of the Schedule Part III obliges the tenant not to make use of the premises in a variety of undesirable ways, and likewise is irrelevant for present purposes.

[8]      Clause 3.1 incorporates the range of tenant's obligations set out in the Schedule Part III. Of these, one is of particular significance for the purposes of the submissions made by the parties before the arbiter and before us. Paragraph (30) sets out an obligation of the tenant in inter alia the following terms:

 

"Planning

In relation to the Planning Acts:-
 

(a)

at all times during the Period of this Lease to comply in all respects with the Planning Acts ...;
 

(b)

...;
 

(c)

not to do or omit or permit to be done or omitted anything relating to or affecting the Premises the doing or omission of which shall be a contravention of the Planning Acts or of any notices, orders, licences, consents, permissions and conditions (if any) granted or imposed thereunder ..."

The Planning Acts are defined in Clause 1.2.8 as meaning the Town and Country Planning (Scotland) Acts 1972 to 1977 and the Local Government and Planning (Scotland) Act 1982, but by virtue of section 2(4) of the Planning (Consequential Provisions) (Scotland) Act 1997 the expression now falls to be construed as a reference to the current legislation, including in particular the Town and Country Planning (Scotland) Act 1997.

The relevant planning history

[9]      Outline planning permission (No. D/11578) for the development which resulted in the building of the premises was granted in May 1987 by Tayside Regional Council.

[10]      Detailed planning permission (No. D/12550) was issued by the City of Dundee District Council on 22 July 1987. The detailed planning permissions was for:

"Erection of superstore, retail warehouse, speciality shopping, food court, office building, heritage centre and associated car parking".

The detailed planning permission was subject to inter alia the following conditions:

 

"01

that this development shall not commence until such time as an agreement between this Authority and the owner of the land and or the applicant in accordance with the Schedule annexed hereto, in terms of Section 50 of the Town and Country Planning (Scotland) Act, 1972 has been registered.
 

03

that the Shopping Mall shall be used only for purposes included within Class 1 Retail of the Town and Country Planning Use Classes (Scotland) Order 1973 unless express written permission is granted by this Authority for an alternative use."
[11]      The premises with which this case is concerned comprise the "retail warehouse" mentioned in the detailed planning permission. It is not clear what was meant in condition 03 by the "Shopping Mall". It is supposed that it was identified in plans forming part of the application for planning permission which were approved in the detailed planning permission, but these cannot be traced. The parties were agreed in proceeding on the basis that condition 03 cannot be taken to have defined the range of goods that might be sold in the retail warehouse.

[12]      A section 50 agreement was entered into, although not precisely as contemplated in condition 01 of the detailed planning permission. The planning authority which was party to the section 50 agreement was not the City of Dundee District Council, but Tayside Regional Council. Although executed in February 1989, some time after both the outline planning permission and the detailed planning permission had been granted, the section 50 agreement proceeds on the narrative that the Scottish Development Agency, the owners of the site, proposed to develop it in accordance with "proposals contained in an application for planning permission being application number D/11578", i.e. the application for outline planning permission. It is to be inferred, however, that that section 50 agreement was treated by the planning authorities as satisfying condition 01 of the detailed planning permission, since the development in due course proceeded. Both parties accepted that that was so.

[13]      For present purposes the relevant provision of the section 50 agreement is Clause (THIRD) which provides inter alia as follows:

 

"The Agency undertakes that the undernoted restrictions shall apply as regards the range of goods to be retailed in the said ... retail warehousing:
 

(B)

The range of goods to be retailed from the proposed retail warehouse shall exclude food as above defined, (other than for consumption within an in-store cafe) and specific consent shall be required from the City of Dundee District as local Planning Authority in consultation with the Regional Council for the sale of any other category of goods."

It is common ground that the reference to the District and Regional Councils must now and for the future be read as a reference to the City of Dundee Council as planning authority. The section 50 agreement, having been registered in the Register of Sasines, may be enforced by the planning authority against the present tenants of the premises, by virtue of section 50(2) of the Town and Country Planning (Scotland) Act 1972 and now section 75(3) of the Town and Country Planning (Scotland) Act 1997. Clause (THIRD) (B), however, does not by itself define the range of goods which may be sold in the warehouse. It provides, in effect, that the range of goods must be defined in a specific consent given by the planning authority.

[14]      The definition of the range of goods permitted to be sold in the premises was completed by a letter dated 19 April 1990 from the City of Dundee District Council, in which, after referring to the section 50 agreement and in particular Clause (THIRD) (B), the Chief Planning Officer in behalf of the Council stated:

"I hereby confirm that Tayside Regional Council has been consulted as to the range of goods to be retailed from the proposed retail warehouse, i.e. that range of goods normally retailed in D.I.Y. outlets, including garden centre with sales related thereto.

... I further confirm that the District Council consents to the sale of range of goods as specified."

The draft award

[15]      In the penultimate paragraph of his draft award the arbiter expresses the following conclusion:

"In my opinion, therefore, on a sound construction of the whole terms of the Lease, the valuation of the market rent of the Premises in accordance with the Schedule Part V of the Lease should be based upon unrestricted non-food retail use in terms of Class 1 of the Schedule to the 1997 Use Classes Order being permitted within the Premises."

 [16]      The reasoning adopted by the arbiter in reaching that conclusion is set out in earlier paragraphs of the draft award. In paragraph (43) he states:

"Uses of the Premises for the sale of goods other than DIY are not in fact prohibited at all. The only restraint is that to use the Premises for some other purpose other than the sale of food (which is prohibited) requires the consent of the Local Authority. As noted above, however, planning permission was granted for a retail warehouse and that, in my view, raises a necessary implication that the sale of any type of goods by retail normally sold from a retail warehouse (other than food) would be consented to by the Local Authority acting reasonably. The only reason why, at the date of review, the permitted use was limited to DIY products is that such use was the only use which had been put to the Local Authority for its approval. That does not, in my opinion, necessarily imply that other uses would not be permitted. Such other uses are certainly not expressly excluded in the Lease.

The assumption that the Local Authority might grant consent to other types of goods being sold by retail from the Premises has been described by commentators as 'hope value'."

The arbiter then discusses certain observations in textbooks about the assessment of hope value, and continues, in paragraph (44):

"The view expressed above is, in any event, reinforced by the terms of the Rent Review Clause itself which provides expressly that the review is to proceed on the supposition (if not a fact) that the Premises are then available for use for 'the purposes herein permitted'. So, even although at the date of review, the Local Authority had consented only to a use for the sale of DIY products, the Supposition is that they would also have consented at the date of review to any other use falling within the User Clause in the Lease but, of course, excluding food which is expressly prohibited both in the Lease and in the Section 50 Agreement.

The arbiter concludes his reasoning in paragraph (45):

"As a result, although it can probably be said that the only use positively permitted at the date of review is for the retail sale of DIY products, other uses are clearly envisaged in the User Clause of the Lease and are also clearly envisaged in the Section 50 Agreement which does not prohibit any use other than for the sale of DIY goods but rather requires a prior consent from the Local Authority to the sale of any particular goods. Under the hypothetical Supposition in the Rent Review Clause itself, I think one has to assume that such consent would have been given if the proposed goods to be sold fell within the normal definition of a retail warehouse which, in my opinion, is effectively what the lease provides in the User Clause."

The questions of law

[17]      These quotations from the arbiter's draft award provide the context in which the questions of law on which the arbiter seeks the opinion of the court may be understood. The questions are:

"1.

Was the Arbiter in the absence of evidence and submissions to that effect, entitled to conclude that the only reason why, at the Date of Review, the use permitted by the Local Authority was limited to DIY products was, that such use was the only use which had been put to the Local Authority for its approval?

2.

Was the Arbiter in the absence of evidence and submissions to that effect entitled to conclude as a necessary implication from the fact that planning permission was granted for a retail warehouse that the sale of any type of non-food retail goods would be consented to by the Local Authority?

3.

Was the Arbiter in the absence of evidence and submissions to that effect, entitled to conclude that other uses would be permitted by the Local Authority? and

4.

In any event, was the Arbiter correct in concluding that the valuation of the market rent of the Premises in accordance with Part V of the Schedule to the Lease should be based upon unrestricted non-food retail use in terms of Class 1 of the Schedule to the Town and Country Planning (Use Classes) (Scotland) Order 1997 being permitted within the premises?"

Question 4

[18]      It is, in our view, convenient to consider Question 4 first. It asks, in effect, whether the arbiter's proposed answer to the preliminary question formulated by the parties is correct. That preliminary question set out alternative views of the effect of paragraph (2) of Part V of the Schedule to the lease. The first view, which is the one contended for by the landlord and upheld by the arbiter, is that the valuation is to be based on the hypothesis that unrestricted non-food retail use in terms of Class 1 of the Use Classes Order is permitted. The second view, which is the one contended for by the tenant, is that the valuation is to be based on the hypothesis that the permitted use is restricted to the sale of a range of goods normally retailed in DIY outlets including garden centre.

[19]      There is no dispute between the parties as to the effect of much of paragraph (2). What is in issue between them is the effect of the following passage:

 

"and upon the supposition (if not a fact)
 

(a)

that all parts of the Premises are then available for use for the purposes herein permitted;
 

(b)

that the Landlord and the Tenant have complied with all the obligations imposed on them respectively under These Presents (but without prejudice to any rights of either party in regard thereto)".

  1. The tenant's submissions

[20]      For the tenants, Mr Martin submitted that paragraph (2) required the valuation to proceed on the hypothesis that the premises were available for the purposes permitted therein, i.e. in the lease. In order to determine what uses were permitted in the lease, it was necessary to have regard not only to Clause 3.2, but also to paragraph (30) of Part III of the Schedule to the lease. Clause 3.2 did not directly identify the uses that were permitted, but rather prohibited all uses except use as a non-food retail warehouse falling within Class 1 of the Use Classes Order (or use for such other purpose as the landlord might approve in writing). The effect was to identify a range of permissible uses (i.e. any use which fell within Class 1), but not to require that the premises be used for the whole range of uses thus identified as permissible. Clause 3.2 therefore left open the possibility that elsewhere in the lease there would be provisions narrowing the range of permissible uses to less than the whole range permissible in terms of Clause 3.2. The effect of paragraph (30) was to narrow the range of uses in that way.

[21]      Paragraph (30) required the tenant to comply with the Planning Acts, and in particular, by sub-paragraph (c), not to do anything which was a contravention of the Planning Acts, or any conditions imposed thereunder. To use the premises otherwise than in accordance with the permission given by the planning authority in the letter of 19 April 1990, i.e. otherwise than for the sale of the range of goods normally retailed in DIY outlets, including garden centres, would constitute a breach of the section 50 agreement. To act in breach of the section 50 agreement would be to contravene conditions imposed under the Planning Acts, since that legislation made section 50 agreements enforceable at the instance of the planning authority against any party deriving title from a party to the agreement.

[22]      It followed, the tenant submitted, that supposition (a) required the valuation to proceed on the basis that the premises were available for the uses permitted by Clause 3.2 and paragraph (30) read together, i.e. not for the whole range of Class 1 uses identified in Clause 3.2, but for the part of that range which was available without contravention of paragraph (30), namely for sale of the range of goods normally retailed in DIY outlets, including garden centres.

[23]      Supposition (b), it was submitted, reinforced that result. It required the valuation to proceed on the hypothesis that the tenants had complied with all the obligations imposed on them by the lease. One of the obligations imposed on the tenant by the lease was compliance with paragraph (30). It followed that the phrase "use for the purposes herein permitted" in supposition (a) required it to be assumed that the tenant was using the premises in a manner compliant with paragraph (30), and thus in accordance with the restrictions imposed by the limited consent given by the planning authority under Clause (THIRD) (B) of the section 50 agreement in the letter of 19 April 1990.

[24]      The foregoing approach, which involved reading the words "herein permitted" in supposition (a) as referring not only to the user clause, Clause 3.2, but also to the obligation to comply with the Planning Acts imposed by paragraph (30), was consistent, it was submitted, with observations by Nicholls LJ in Basingstoke and Deane Borough Council v Host Group Limited [1988] 1 WLR 348 at 353D-F, in which the need to have regard to the whole document was stressed.

[25]      The result, it was submitted, was that supposition (a) required the valuation to be conducted on the hypothesis that the premises were available, not for the whole range of uses identified in Clause 3.2, but for the more restricted range of uses identified by reading Clause 3.2 and paragraph (30) together. Supposition (b) required it to be assumed that the tenant was complying with paragraph 30, and therefore not using the premises for a wider use than was permitted under the consent given by the planning authority in the letter of 19 April 1990. In the result, the answer proposed by the arbiter to the preliminary question proposed by the parties was wrong, and the correct answer was that the valuation of the premises for the purpose of the rent review clause required to proceed on the basis that the permitted use of the premises was for non-food retail use restricted to the sale of the range of goods normally retailed in DIY outlets, including garden centres. Question 4 on the stated case should therefore be answered in the negative.

(b) The landlord's submissions

[26]      In submitting that the arbiter had proposed the correct answer to the preliminary question proposed by the parties, Mr Cullen stressed that paragraph (2) of Part V of the Schedule clearly and expressly contemplated that the valuation of the premises should proceed on a hypothetical basis, which might be contrary to the true facts. He submitted that the effect of paragraph (2) was to introduce, as the basis for the valuation, the hypothetical assumption that, notwithstanding the limitation placed on the use of the premises by the scope of the consent granted by the planning authority in the letter of 19 April 1990 in pursuance of Clause (THIRD) (B) of the section 50 agreement, the premises could be used for the whole range of uses permitted by the user clause, Clause 3.2.

[27]      The matter was, it was submitted, a matter of construction of paragraph (2). Supposition (a) introduced a hypothesis as to the permitted use. The hypothesis was that the premises were available for use for the purposes "herein" permitted. The premises were "available" for a particular use if there was in existence no lawful prohibition, whether statutory or contractual, against that use (Trust House Forte Albany Hotels Ltd v Daejan Investments Ltd (1980) 2 EGLR 123, per Fox J). Supposition (a) thus required the assumption to be made that there was no statutory or contractual obstacle to use for the purposes "herein" permitted. Initially, Mr Cullen's submission appeared to be that "herein" meant in the user clause, Clause 3.2. If that was so, the assumption required by supposition (a) was that there was no statutory or contractual obstacle to use for the whole range of uses permitted by Clause 3.2. It thus required the limitation on permissible use effected by the obligation to comply with paragraph (30) to be ignored. Supposition (b), relating to compliance with the tenant's obligations under the lease, meant that it was to be assumed that there was no contravention of planning control in any use permitted by Clause 3.2. The purpose of supposition (b) was to postulate not that there was compliance with whatever planning permission was in force, but rather that planning permission existed which was co-extensive with the user clause.

[28]      At a later stage in the landlord's submissions, however, Mr Cullen accepted that "herein" could not mean "in the user clause" but must mean "in the lease as a whole". He nevertheless submitted that the effect of supposition (b) was that the valuation had to be conducted on the basis that there was planning permission for the whole range of uses permitted by Clause 3.2, not merely the narrower range of uses for which planning permission actually existed. Supposition (b) required the assumption to be made that the tenant had complied not only with the obligations actually incumbent on it, but also with the obligations which would have been incumbent on it if supposition (a) were fulfilled. That, Mr Cullen submitted, meant that it had to be supposed (1) that the premises were available for the whole range of purposes mentioned in Clause 3.2, and (2) that the tenants had complied with the obligations which would be incumbent on them if the premises were so available for the whole range of purposes permitted by Clause 3.2. Those obligations would include the obligation to have planning permission for the whole range of uses permitted by Clause 3.2

[29]      In the result, the submission for the landlord was that the valuation required to proceed on the basis that the tenant had planning permission for the whole range of uses permitted by Clause 3.2, and that the premises were accordingly available for the whole of that range of uses, notwithstanding the fact that planning permission actually existed only for the more limited range of uses identified in the letter of 19 April 1990. Question 4 therefore fell to be answered in the affirmative.

(c) Discussion

[30]      In our opinion it is necessary first to understand what is meant by the reference in supposition (a) to "the purposes herein permitted". "Herein", if viewed in isolation, is capable for referring back (i) to paragraph (2) of Part V of the Schedule, or (ii) to Part V of the Schedule as a whole, or (iii) to the Schedule as a whole, or (iv) to the lease as a whole. But the provisions which define the purposes for which the premises may be used are found principally in Clause 3.2, and it seems to us to follow that "herein" cannot mean "in paragraph (2) of Part V of the Schedule", or "in Part V of the Schedule as a whole" or "in the Schedule as a whole". It seems to us that the natural meaning of "herein" is "in the lease as a whole". There is, in our view, no room for the conclusion that herein means "in Clause 3.2 to the exclusion of other provisions of the lease". We are therefore of opinion that when supposition (a) requires it to be assumed that all parts of the premises are available for use for "the purposes herein permitted", it is directing attention not only to Clause 3.2, but also to any other provision of the lease which bears on the use to which the premises may permissibly be put. The provisions of the lease which bear on the permissible uses to which the premises may be put include not only Clause 3.2, but also paragraph (30) of Part III of the Schedule, which in effect prohibits any use which would involve contravention of the Planning Acts or any conditions imposed thereunder.

[31]      Although in argument the tenant relied on supposition (b) to support that conclusion, it is in our opinion unnecessary to do so. Supposition (b) is concerned with ensuring that the hypotheses on which the valuation proceeds includes the hypothesis that the parties have (as a matter of history at the date of review) complied with the obligations imposed on them under the lease. It is not, it seems to us, concerned to state a hypothesis as to future compliance with the provisions of the lease. That the review is to proceed on the basis that the parties will, for the future, adhere to the obligations imposed on them by the lease is secured not by supposition (b), but by the concluding provisions of paragraph (2), which require the reviewed rent to be determined on the basis that the subjects are to be let "in all other respects on the terms and conditions of These Presents".

[32]      For the reasons which we have set out in paragraph [30] above, we do not consider that the phrase "for the purposes herein permitted" in supposition (a) can be construed as making a cross-reference exclusively to Clause 3.2. That was, as we understood him, ultimately accepted by Mr Cullen. The argument on which he relied latterly was a different one, and involved a construction of supposition (b). It was that supposition (b) required it to be assumed that the tenant had complied not only with the obligations actually imposed on it by the lease, but also the obligations which would have been imposed on it if the premises were assumed (by virtue of supposition (a)) to be available for the whole range of purposes contemplated in Clause 3.2. That approach is in our view unsound for two reasons. In the first place, we see no proper basis for supposing that the scope of supposition (b) is any wider than to require the assumption that the parties (including the tenant) have complied with the obligations actually incumbent on them under the lease, such as the repair obligations imposed by Part III of the Schedule. We do not consider that supposition (b) falls to be construed as requiring an assumption of compliance with obligations which were not actually incumbent on the tenant, but might (on one view of supposition (a)) have been incumbent on them if the circumstances had been as supposition (a) required them to be taken to be for the purpose of the rent review clause. In the second place, the argument is internally inconsistent. It starts from the position of acceptance that the word "herein" in supposition (a) means "in the lease as a whole" rather than "in Clause 3.2", but ultimately depends on acceptance of the view that supposition (a) requires an assumption of availability for the whole range of purposes described in Clause 3.2 rather than the narrower range permissible in terms of Clause 3.2 read together with paragraph (30).

[33]      For these reasons we are of opinion that on a sound construction of the lease the valuation of the premises for the purpose of the rent review clause requires to proceed on the basis that the permitted use of the premises is for non-food retail use restricted to the sale of the range of goods normally retailed in DIY outlets, including garden centres. In these circumstances, Question 4 in the stated case falls to be answered in the negative.

Questions 1, 2 and 3

[34]      These questions arise out of the arbiter's resort to the concept of hope value as part of his reasoning in support of his conclusion that the valuation should proceed on the basis that unrestricted non-food Class 1 use was permitted. It does not appear that there was any discussion of that concept in the hearing before the arbiter. We do not find it difficult, however, to understand why the arbiter had resort to the concept of hope value, because it is a concept which may well have a part to play in the valuation process which will ultimately require to be carried out by him. It may not have been made clear to him that the question of interpretation of the effect of suppositions (a) and (b) which was submitted to him required to be determined before any question of making allowance for hope value arises. There was considerable discussion of that matter in the hearing before us, but we are satisfied that the parties were ultimately agreed, and rightly agreed, that the consideration of hope value was irrelevant to the question of construction which it was intended the arbiter should determine as a preliminary issue. The expression "based upon" was not, it seems, used in any comprehensive sense. Rather it denoted the "starting point" of the valuation process, at least so far as the tenant's contention was concerned. In the event we have answered that question of construction in favour of the tenant. As a result the valuation must proceed on the basis that the permitted use is for sale of a range of goods normally retailed in DIY outlets, including garden centres. In that situation the possibility remains that the landlord may wish to argue that the valuation derived on that basis should be increased because the hypothetical tenant would ascribe hope value to the possibility that the planning authority might be persuaded to consent to wider use within Class 1 than was consented to in the letter of 19 April 1990. The answer which we have given to question 4 does not preclude that possibility.

[35]      We are of opinion, however, that the arbiter was wrong to make the assumptions that he did, and to allow those assumptions to affect his approach to the preliminary construction question with which he was concerned. As Mr Martin pointed out, an arbiter must base his conclusions of fact on the evidential material placed before him by the parties (Mitchell-Gill v Buchan 1921 SC 390 per Lord President Clyde at 395). Here the arbiter has assumed, without evidence on the point, that the only reason why, at the date of review, the use consented to by the planning authority was limited to the retail of DIY products was that that was the only use for which their approval had been sought. He has gone on to assume that, since planning permission was granted for a retail warehouse, it was necessarily implied that the planning authority would consent to the sale of any non-food goods, if such consent were sought, and that other uses beyond the existing consent would therefore be permitted. In our view these are not legitimate inferences from the material before the arbiter. The parties are unable to ascertain whether the retail of DIY products was the only use of the premises for which consent was sought. It certainly cannot properly be assumed to be so in the absence of evidence. The assumption that the granting of planning permission for a retail warehouse means that the planning authority would consent to any non-food retail use if asked to do so is not in our opinion justified. If the question of hope value based on the possibility of wider consent being granted than was granted in the letter of 19 April 1990 is to be pursued in the current rent review, then that contention will require to be supported by evidence.

[36]      In these circumstances, we did not understand either counsel to dispute that, if question 4 was answered in the negative, questions 1 to 3 also fell to be answered in the negative.

Result

[37]      For the foregoing reasons we answer all four questions in the Stated Case in the negative.

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