May 10th, 2017 / Insight posted in Articles

Kingston Smith acts on landmark case for fairer CPO compensation

In a recent decision by the Upper Tribunal (Lands Chamber) in the matter of SME (Hammersmith) Ltd and Transport for London, SME won a landmark victory, assisted by the expert evidence of Kingston Smith LLP consultant, David Epstein.

SME was a franchisee, through about twenty companies, of over 100 fast food franchisees in the UK.  In June 2009, one of these, operating as Kentucky Fried Chicken in Farringdon, was compulsorily acquired by TfL as part of the Crossrail development.

Unfortunately, the Claimant was unable to relocate due to the density of the area and the reluctance of other residents to permit them as an occupier.  TfL therefore agreed that the business should be treated as extinguished.

SME had engaged the services of Kingston Smith in mid-2009, initially to advise and negotiate on the case and, subsequently, to provide Expert Witness services.

A number of issues existed between the parties.  Besides the measure of loss of profits and the multiplier to be used to establish the loss the owner suffered, the lease of the premises expired six months before possession.  Despite protection under Sections 24 to 28 of the Landlord and Tenant Act 1954, no new rent or lease had been agreed.

After a number of years’ discussion, it was agreed with TfL that, in the absence of Crossrail, a new lease would have been granted for 15 years without a break, and the rent that would have been payable was agreed.  It was therefore possible to measure the loss of profit the business would have suffered on an annual basis.

This was initially disputed between the two expert accountants, but eventually was agreed at £107,000 per annum, as a profit before tax figure.

This left only the multiplier to be decided but, due to the differences in the expert views, no resolution could be found and the matter proceeded to Tribunal.

David Epstein for SME contended, based on his experience and one comparable case 18 months prior to possession, that the multiplier should be 17 times the annual profit.  TfL’s expert contended that the multiplier should only be seven times the profit and relied on a comparable case three months after possession, and the fact that in Upper Tribunal proceedings there had never been an award of more than 7.5 times annual profit.

After a three day hearing at the Royal Courts of Justice, SME was successful, with its evidence being preferred. An award was made of 14 times the agreed annual profit.

While most claimants will not have the benefit of operating under an international brand such as KFC, with an award of almost double anything awarded by the Tribunal before this case opens the door for Claimants to ask for, and hopefully achieve, fairer compensation in future.