UK: Hotel Valuers and Investors Reminded of Risks with Complex Hotel Rent Calculations

Last Updated: 9 June 2010
Article by Tom Page and Nick Moore

A recent case in the UK courts has provided a timely reminder to valuers that they have to fully understand the complex rent calculations in hotel leases in order to properly carry out their valuations.

The claimant investors in this case were the Danish equivalent of limited partnerships and were controlled by a Danish company, Scanplan. Scanplan identified four hotels in England, of which it bought one in each investor's name. Each hotel was leased to a hotel operator and each lease contained a provision by which, in certain circumstances, a turnover rent would become payable instead of the base rent. The defendant was the valuer appointed by the investors to prepare valuation reports to aid the acquisition. The case involved the investors' claim that the valuer had negligently valued the hotels by not taking into proper consideration the true effect of the complex rent calculation provisions.

To view the article in full, please see below:

Full Article

Turnover rent provisions

The turnover rent payable was assessed by reference to the amount by which a percentage of the hotel's gross turnover for any relevant turnover period exceeded the base rent payable in respect of that period. In other words, if the turnover of the hotel increased to a certain point, the tenant would have to pay rent at a commensurately higher level. In any turnover period, where the specified percentage was less than the base rent, the shortfall would be rolled over into the next (and each successive) turnover period and would be deducted from the next payment of turnover rent. Therefore, where the tenant failed to reach the specified percentage from its turnover, so that there was a shortfall when compared to the base rent, the tenant carried forward the benefit from that shortfall to the next and successive turnover periods.

The net effect was that turnover rent would only actually become payable when the total shortfall, which might have built up over successive periods, had been fully accounted for. The inclusion of such a lease provision, as was the case here, can adversely affect the prospect of rental income growth.

Investors' claim

The valuer prepared valuations of the hotels and referred to the shortfall provision. However, its forecasts for when the rents would increase under the arrangement did not take that provision into account. The investors therefore claimed:

  • that the valuer owed and breached a duty to take reasonable care not to misstate in its valuation reports any important matter it might have considered important when undertaking the valuation exercise, including the operation of the shortfall provision; and
  • that failures in the valuer's method of valuation rendered it liable in negligence, regardless of whether its valuations were within a permissible bracket around the correct valuation.

Lack of reliance

The Court held that the valuer did indeed owe a duty of care as alleged by the investors and that, in ignoring the shortfall provision, it had breached that duty in its forecasts as to when the hotels might generate surplus rent. However, on the facts, the breach of duty was of no consequence because Scanplan had not relied on that part of the reports.

Scanplan had clearly been given correct advice as to the effect of the provision and on the evidence had understood that advice. In its attempt to obtain investment in the investor vehicles, Scanplan had created its own prospectuses in which it omitted to include certain elements of the valuer's valuation reports. The prospectuses set out Scanplan's own forecasts and calculations. It could not be argued that the valuer's error was causative of the claimed loss.

Valuation within a "reasonable bracket"

The Court also found that although a valuer could be in breach of duty by falling below the standard of a reasonable valuer in his methodology, that valuer would not be liable in negligence if it could be shown that, notwithstanding the error, the valuation figure produced was within a reasonable bracket. In determining what the permissible bracket might be, there were a limited number of comparables. The investment market in hotels was immature and there was an improving market at the material time, which created particular difficulties for valuers.

Taking those factors into account, the Court held that the appropriate margin of error might well have been in excess of 10 per cent. In this case, the valuer's valuations had been within 10 per cent of the correct figure and were to be considered by reference to the overall valuation rather than to the yield percentage. Accordingly, although justified criticisms could be made of the way in which the valuer went about its valuations, liability could not be established. The judge commented that in the ordinary valuation case, a valuer's performance should be judged by the final figure, not the minutiae of how he got there. In short the law focuses on the result, not how it is achieved.


Variable rent provisions are particularly common in hotel leases for accounting reasons. They also help to mitigate operating risk/sector downturn. As well as being a reminder to valuers to always read carefully the relevant lease provision and if necessary seek advice, investors should also take note of the circumstances in which valuers may be absolved of any liability for their mistakes. In this case:

  • Scanplan knew and understood the shortfall clause and therefore the negligent omission by the valuer was not causative of the investors' loss; and
  • the valuations provided were within the reasonable range of values that a non-negligent valuer might have calculated.

In light of the above the court found no liability on the part of the defendant valuer and the claim in relation to negligent valuation also failed.

Further reading: (1) K/S Lincoln (2) K/S Chesterfield (3) K/S Wellingborough v CB Richard Ellis Hotels Ltd (No.2) (2010)

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 04/06/2010.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions