Court grants new tenancy to tenant after lease expiry, setting rent based on statutory rental value of the property.

Record No: 2022/04312

Neutral Citation: [2024] IECC 19

AN CHÚIRT CHUARDA

THE CIRCUIT COURT

DUBLIN CIRCUIT CIVIL COURT COUNTY OF THE CITY OF DUBLIN

IN THE MATTER OF

BEWLEY’S CAFÉ GRAFTON STREET LIMITED

Plaintiff

and

RGRE GRAFTON LIMITED

Defendant

Judgment of Her Honour Judge Jennifer O’Brien delivered this 25th day of October 2024

1. Bewley’s, in the words of James Joyce, a ‘legendary, lofty, clattery café’ a place imbued with conversation and memoriesa unique premises with an exquisite interior and an Egyptian shop front, in the heart of Dublin’s Grafton Street. How do you put a price on that?

2. This case comes before the Court by way of Landlord and Tenant Civil Bill issued on the 4th day of November 2022. The plaintiff is the tenant of the shop known as Bewley’s Café (“Bewley’s”) situate at 78 & 79 Grafton Street and at 2, 3 & 4 Johnson's Court, in the city of Dublin. The defendant RGRE Grafton is a limited liability company having its registered office at an address in Sandyford, Dublin 18 and is the owner of the property known as Bewley’s Café.

3. By indenture of lease dated 22 September 1987 made between Royal Insurance Plc and Bewley’s Cafés Limited, the property demised thereby was let to Bewley's Café Limited for the term of thirty-five years from 6 August 1987 at the initial rent of

£168,000 per annum. The said term expired on the 5th of August 2022. Bewley's Café Limited subsequently changed its name to Bewley's Café Grafton Street Limited.

4. In accordance with the provisions of section 20 of the Landlord and Tenant (Amendment) Act, 1980 (“the 1980 Act”) on or about 3 August 2022, the plaintiff served on the defendant a notice of intention to claim relief. The property is a tenement within the meaning of section 5 of the 1980 Act. The plaintiff has continuously occupied the property during the whole of the period of five years ending at the date of expiry of the lease and has a bona fide use of the property for the purpose of carrying on a business. The plaintiff has made improvements to the property as specified in the civil bill.

5. In June 2024, an order was made on consent such that Bewley’s is entitled to a new tenancy. The issue before this court is to determine the level of the rent for same. The tenant has elected to take a five-year term at a rent decided by the court pursuant to the provisions of section 23 (5) of the 1980 Act. The landlord filed a defence which denies that the plaintiff made improvements to the property or that any such improvements increased the letting value of the property.

6. Section 23 (4) of the 1980 Act provides with regard to fixing of terms of a new tenancy by the court: “Subject to subsection (3), the rent shall be the gross rent reduced, where appropriate, by the allowance for improvements provided for by subsection (6).”

7. Section 23 (5) provides: “The gross rent shall be the rent which in the opinion of the Court a willing lessee not already in occupation would give and a willing lessor would take for the tenement, in each case on the basis of vacant possession being given, and having regard to the other terms of the tenancy and to the letting values of tenements of a similar character to the tenement and situate in a comparable area but without regard to any goodwill which may exist in respect of the tenement.”

8. Section 23 (6) provides: “The allowance for improvements shall be such proportion of the gross rent as is, in the opinion of the Court, attributable to improvements made by the tenant or his predecessors in title and in respect of which the tenant would have been entitled to compensation for improvements if (as the case may be) this Part did not apply to the tenement or the new tenancy had not been created.”

9. Section 45 provides: “For the purposes of sections 46 to 57, “improvement” in relation to a tenement means any addition to or alteration of the buildings comprised in the tenement and includes any structure erected on the tenement which is ancillary or subsidiary to those buildings and also includes the installation in the tenement of conduits for the supply of water, gas or electricity but does not include work consisting only of repairing, painting and decorating, or any of them.”

10. Both parties agree that the above provisions are applicable in the instant case. The court heard evidence from the tenant’s expert, Mr. Fergus Crosse, Principal of College Properties and also from the defendant’s expert, Mr. David Potter of Savills Commercial (Ireland) Limited. The evidence of these two very experienced valuers on each side differs enormously. Mr. Crosse puts the gross annual rent at a figure of €500,000 per annum whereas Mr. Potter puts forward a figure of €1,000,000 per annum approximately. There is a debate between the experts as to the value of improvements but also with regard to the appropriate approach for valuation of a property of this kind, in the heart of Grafton Street. It is submitted for the plaintiff that there has been considerable expenditure over a period of 35 years, however it is submitted that what the court needs to consider is not the cost of improvements but rather the extent to which they contribute to the current value of the property. The tenant submits that there is a contribution to the current value whereas the landlord says that there is not.

11. Both parties agree that Bewley’s Café is a unique property with an enviable location on Grafton Street which contains valuable artwork including the Harry Clarke-stained glass windows, in respect of which counsel submits same have not previously been considered in the context of rent reviews. The property was leased to Bewley’s Café until 1987 when Bewley’s Café acquired the fee simple from the Bewley family and then did a sale and leaseback with Royal Assurance. That lease expired in August 2022 when Bewley’s Café applied for a new tenancy and as such the court must decide the appropriate rent for the five-year period commencing in August 2022. It was submitted that the parties have measured and agreed the floor areas with minor variations of no significant difference.

12. Mr. Crosse gave evidence that he has been practising in the commercial Irish market for about fifty years. He started his career with a company Jones Lang Wootton, now called Jones Lang LaSalle, in 1973. Later on, he opened in private practice which he has engaged in for the last thirty years. He advises retailers primarily in acquisition and disposal, rent reviews and all matters to do with retail outlets in Ireland. He’s acted on behalf of a number of multinationals, and he still does to the present day.

13. In giving an overview of the premises, Mr. Crosse described that same is situate midway on Grafton Street. It’s an old 19th century building, and the actual demised area comprises two buildings, two separate buildings originally. There’s the front building facing Grafton Street and then it was extended into a building to the rear which was accessed from Johnson's Court. He gave evidence that at the commencement of the lease, both the basement and ground levels had a common link as they were on the same level. He said the upper stories of the front building and the upper stories of the rear building on Johnson's Court did not have any connection;

there was a large void space between those structures. He said it ended up that the premises were held under the single lease which comprises of two separate buildings, originally linked at ground and basement level. Mr. Crosse confirmed that the tenant linked the properties at the first floor by constructing an area between the first floor of the front building and the first floor of the anterior building. The court also considered the plans of each level which were handed into court.

14. He described the original structure with reference to the plan and the part where the front of the building ends, where you come off Grafton Street and on the right-hand side as you come through the doors down to the lift and the staircase, pointing out that the staircase and the wall protruding was the original division wall, the rear wall of the front building. He described that where you see a new staircase, a curved feature staircase, that was the area that linked the basement and the ground between the buildings at that level, now it also links at first floor level, after the tenant filled in the first floor. He described the Johnson's Court building then, which basically is T- shaped because it wraps around the corner building on Grafton Street and Johnson's Court, and also extends to the rear of the building next door with access from a laneway at the basement level. He described that it has its own independent access on Johnson's Court.

15. Mr. Crosse described his valuation rationale as follows. He said that while approaching transactions on Grafton Street, once the transaction has been agreed between a tenant and a landlord, valuers then seek to analyse that to find out how that compares with other transactions on the street. He said the common feature in analysing such transactions is to zone the ground floor. He explained that they take the front of the building and for every depth of 20 feet, they half the rent for a depth of each zone. If the first zone for instance had applied €100 per square foot, the second 20 feet would demand a rent of €50 per square foot and the third would be €25 per square foot. He described that they take that configuration for the purposes of amalgamating that into a single figure which is “in terms of zone A”, we take the full floor area of the first 20-foot depth, half the floor area of the second 20-foot depth, quarter of the floor area of the third depth. That gives the overall area in terms of zone A for the floor. We then apply a zone A rent to that. So that rent reflects the depth.

The deeper you go, the lesser the rent becomes and that's the method of calculating, that is taking the entire area of the three zones and applying a zone A rent overall to it.

16. With reference to the plan/map of Bewley’s Café he described that the front of the building is on Grafton Street, so that you come back to an area roughly 20 feet into the building and that zone A would attract the highest rate per square foot. The next

20 feet is described as zone B and as such whatever rate you applied to zone A will be halved for zone B. Likewise, when you go back another 20 feet the rent to be applied in zone C would be half that of B and then the remainder space beyond that, he described that they regard the rest of the building as being in zone D and again that would attract half the rate applicable in zone C. He explained that this is the principle behind the zoning.

17. He described the zoning will also take into account special features where, for instance the building is an unusual shape. As such there are some adjustments to be made when arriving at your total figure. He explained that that is how the rent is applied on a zoning basis to the ground floor.

18. With regard to the other floors, on basement, first, second, third or whatever other floors, there is a single rate per square foot applied to those floors, it is only the ground floor that attracts the zoning, primarily because the retailer generates his income predominantly from the ground floor. He stated that in fact the ground floor rents normally equate to around 70% of the total rent of a building. He described that for the purpose of the ground floor, the further you go back it becomes less attractive to retailers who would normally tend to have back of house services or staff rooms or stock rooms at the back of a building, that they concentrate most of their business at the front of the building.

19. Mr Crosse confirmed that he had considered letting values of tenements of similar character and that in this regard he had considered buildings of a similar size as distinct from a small lock up shop. He said that once we look at that we can see what other transactions have happened close to the date of valuation. He describes that there is greater weight placed on new lettings close to the valuation date as distinct from a rent review of some other arrangements. The weighting, he said, favours a new letting, in other words a new agreement between a willing landlord and a willing tenant, which the Act asks us to ascertain.

20. Mr. Crosse described that at the date of valuation there were special planning controls placed on the Grafton Street area by Dublin City Council and they have applied restrictions. Prior to that when the lease commenced, it was possible for an occupier of a building to change from retail to restaurant or vice versa without requirement for planning. At the date of valuation, if one wanted to change from the user, the restaurant user to for instance accommodate an open retailer, be it fashion or whatever, they would be required to seek planning permission for that change of use.

21. Mr. Crosse described that a series of works have been carried out over the duration of the lease and that same were carried out with the landlord's approval at the tenant’s expense, the main feature of those works being to open up the premises, to try and amalgamate it into one complete trading entity. He said that work involved opening up the rear wall of the front structure, the addition of more space to link at first floor level between the two buildings and literally to upgrade the structure to make it more retail friendly and to open up circulation within the building for customers.

22. With regard to the layout of the ground floor at the date of the lease Mr. Crosse stated that there were a number of impediments on the layout of the ground floor, such as elevated display areas in zone A which meant that one could not retail or get utilisation other than for display purposes and that the rent should reflect that at the date. He said that there were also subdivisions within the space where there were offices in separate rooms, which once again limited the space for retailing and for customer movement. He said that linked to that, going from the front building to the

Johnson's Court building to the rear, there was a wall dividing the property and there was only a single door in that wall to permit access from the front building to the rear building. He described it as being like an egg timer. He said that if you were building it today you would not put an obstacle in the way of circulation within the premises.

He said that this wall was subsequently modified and eventually removed, at the expense of the tenant with the landlord's approval.

23. He describes his approach was to place a rental value on the premises with its internal configuration today and then to compare that to the internal configuration at the commencement of the lease and to apply the same rent to the structure as it was in its pre-approved configuration as he would apply to its current configuration, in other words, he described the rental rates he would be applying as of 6 August 2022 would reflect, first of all, the current improved internal configuration of the building and he would apply the same rents to the former internal configuration of the premises at the commencement of the lease and reflect the changes.

24. Mr. Crosse then brought the court through his comparisons, stating that he looked for transactions that happened close to the date of valuation and that he'd also looked for some similarities, perhaps a building that was a protected structure like the subject premises.

25. He referred to the premises on the corner at number 64 Grafton Street (“Canada Goose”) which is a protected structure like the subject property and is a new letting, while the tenant received a 12-month rent free period. He also took into consideration the lease break option after five years, collecting the rent at a figure of €450,000 per annum. He said the property has a substantial return frontage and display frontage. He said there is usually a loading of anything up to 10% placed on a zone A rent to reflect that the building has a display, a returned display frontage. He said he had taken the basement and applied an overall rate of €15 per square foot. He applied a rate of €450 per square foot zone A on the ground floor. On the first floor he's adopted a rate of €25 per square foot overall for the first-floor retail. For the second-floor ancillary he applies a rate of €12 per square foot and €10 per square foot for the third floor and for the attic he applies a rate of €5 per square foot. He said the €450,000 includes a 5% loading for the return display frontage. So, if you take a 5% deduction for that you have a net zone A rate of €427.5 per square foot. It is confirmed that these figures are exclusive of rates, service charges or whatever other outgoings there may be. Mr.

Crosse also confirmed that unlike the subject premises, which is restricted, this comparison has an open retail use.

26. Mr. Crosse also referred to the property Victoria's Secret which he described as a modern structure which is almost directly opposite Bewley’s Café. He said it was a substantial building totalling approximately 29,000 square feet. It also had the benefit of a corner where it has a display return frontage, and that this transaction was a rent review in January 2022. He said the passing rent prior to that date was €1.8 million and after the review it dropped to €1.5 million. He said he adopted a zoning method for the ground floor which comes out at €500 per square foot and will also be applying a 5% discount on that for the display corner frontage. He said that breaks back at a net zone A for the ground at €475 per square foot. He said that he adopted a single rate applicable to the basement, first, second and other floors. He said this was a building with open retail use, a modern structure with a floor plate literally from front to rear without impediment. It is not a protected structure, and it is in the context of an agreed rent review. Mr. Crosse confirmed that open market transactions are a reflection of what the Act asks us to do, to work out what a willing tenant and a willing landlord would agree. He said that rent reviews by their very nature, if the parties cannot agree are then referred to a third-party arbitrator or expert to ascertain the rental value. As such he said the greatest weight is placed on an actual transaction agreed between parties, preferably a new letting.

27. The next comparison was & Other Stories at 26/27 Grafton Street, Dublin 2. Mr.

Crosse described that this was a slightly earlier rent review and once again an agreed rent review between the parties. He said the building was directly opposite the subject premises. It is a corner building with a modern structure, it provided for open retail use and was not a protected structure. It was reviewed in August 2021. It’s previous passing rent was €925,000 and that was reduced by agreement to €725,000. He said the zone A basis was €468 per square foot. He said his report was updated to include a summary of transactions on the street to show the trends in rental values and that includes the properties mentioned and also additional properties. These figures show a downward trend in rent in respect of a number of properties:

i. &Other Stories at 26/27 Grafton Street reducing from €925,000 to €725,000 giving a zone A rate of €433 per square foot; ii. McDonald's at 9-11 Grafton Street reducing from €775,000 to €650,000 giving a zone A rate of €450 per square foot; iii. Victoria's Secret at 28/29 Grafton Street with rent of €1,850,000 reducing to €1,500,000 with a zone A rating of €500 per square foot; iv. Abracadabra at 4-5 Grafton Street with rent reducing from €250,000 to €182,000 with a zone A rating of €260 per square foot; v. Sketchers at 13/14 Grafton Street with a reduction from €1,680,000 to €695,875 average rent over ten years or €629, 250 average rent over five years with a zone A rating of €407 per square foot/ €359 per square foot; vi. Massimo Dutti at 65 & 66 Grafton Street with the reduction from €1,265,500 to €1,085,000 with a zone A rating of €487 per square foot.

28. Mr. Crosse gave evidence with regard to the planning restrictions in relation to this property. He said the Dublin City Council planning restrictions had singled out the occupier and the user of the subject premises as being a very desirable use for the street. They singled out three users on the street that they are pleased to see, and these include Bewley’s, Weirs and Brown Thomas department store. It is their aspiration that these would stay trading on the street as it is believed that they are an integral part of Grafton Street. They say in the special planning control, and he read from the text “Bewley’s Café at 78/79 Grafton is deemed to be a use that contributes significantly to the special and unique character of Grafton Street and as such is considered an essential part of the street. It is an objective in accordance with the scheme of special planning controls of Grafton Street and its environs to protect the use of the entire building as a cafe which is intrinsic to the special character of the building.”

29. Mr. Crosse referred to his conclusion that Dublin City Council would not like to see a change of use and their views would be that they would like to see it remain as a restaurant. As such an occupier acquiring that lease today on a new lease arrangement would be influenced by the limitations that places on him for the ability to transfer his lease to a different use.

30. In addition, the premises is recorded as a protected structure, which places requirements on the occupier to maintain the premises and to keep as a protected structure. Such obligations do not apply to premises that are not listed as protected structures and there is an additional cost involved to the occupier. He said that the planning and protected structure limitations would have to be reflected in the annual rent.

31. Mr. Crosse gave evidence with regard to the detail of works carried out at the premises over the 25-year term of the lease, such that there were three different sets of works carried out, all at the expense of the tenant with the landlord’s approval. He said those works included the removal of an internal division wall between the front and the rear buildings at ground floor level. He referred to photos showing doorways within this division. He said that the view of the interior of the building in these photos could be aligned with the lease map and one could identify those portions of the building. He confirmed that the mezzanine floor is still there and that it has been expanded and elongated. He referred to the last set of works occurring in 2015 where the feature staircase was linked. He said there was further work which resulted in the amalgamation of the front and rear buildings at first floor level and linkage to the upper floors of the Johnson’s Court building. He said the works undertaken within the premises have improved customer circulation within the premises and facilitated change of use from ancillary to retail. He said that these changes will reflect in the rental valuation of the before and after internal configurations within the premises and should assist in determining the allowance for improvements.

32. Mr. Crosse gave evidence that the statutory rental value was in the sum of €518, 697 pax. In the course of his evidence Mr. Crosse acknowledged that Mr. Potter had decided not to zone the ground floor but instead to apply an overall rate per square foot to the 4,000 odd square feet and he's arguing that it is a restaurant premises, and he refers to the zoning guidance to the Chartered Surveyors in support of that viewpoint and he recites from that document. The witness read from Mr. Potter’s report as follows: “The Society of Chartered Surveyors Ireland Information Paper - Retail Zoning for the Chartered Surveyor” provides that: “It is suggested that some users do not suit zoning. For example, pubs and large restaurants do not drive the same benefit from the first 6.1 metres of the premises as retail outlets.”

33. It also provides that: “Zoning is not recommended for period premises or those without a standard shopfront presence.”

34. It also notes that: “Where zoning is applied it is also recommended the premises be considered on an overall basis as there are instances where zoning produces an anomalous result.”

35. The witness stated that Mr. Potter relies on section 10 of the guidance notes but omits the last sentence of the guidance notes, which provides: “This will only apply where the premises does not readily suit or cannot be used for retail purposes.”

36. Mr. Crosse gave evidence that he thought Mr. Potter had taken a very narrow meaning of that clause. Mr. Crosse gave evidence that he believed Mr. Potter’s method of valuing the overall rate per square foot for the entire ground floor was one which would distort the rental values, particularly where the premises in question has a depth of over 120 feet. He gave evidence that if one looks at the rental value based on a rate, an overall rate per square foot to the ground floor, his figure comes out at €717,850 for the ground floor which would reflect a zone A rate of €602 and there has been no evidence introduced anywhere to support that zone A figure. He gave evidence that zoning ground floor retailers on Grafton Street on an overall rate per square foot throws up all types of conundrums, in terms of it's hard to see a pattern between the premises. He said the zoning is a better approach because it takes into account the configuration and size of the building. For instance, by applying a single rate per square foot to the front of a building and then going 120 feet back to the back wall of the premises and applying the same rate, it's penalised in that area at the rear. It would be more appropriate to take a valuation midway back in the building, as to what the midpoint is worth and discount the front and load the rear. It’s throwing up a result which is not supported by evidence on the street, which generally is accepted by valuers to be analysed on a zoning basis.

37. He said that the examples relied on at 13/14 Grafton Street and at 26/27 Grafton Street are a distorted position and not a true reflection for comparison purposes, because the norm within the industry is to analyse transactions, be it rent reviews or lettings, on Grafton Street on a zoning basis. As such he does not agree with applying a flat rate per square foot on the ground floor as suggested by Mr. Potter. He said that it is properly referred to in press releases about the various retail streets in Dublin and Ireland as to what the zone A rate is, and it is unusual to apply an overall rate. He described that the range in Mr. Potter's overall rates per square foot was enormous by comparison to zoning.

38. With reference to 65/66 Grafton Street, the old Woolworth’s building, Mr. Potter applied a rate of €197 per square foot but once again that is a substantial modern building. He said this building has frontage of the order of 40 feet onto the street. He said that the rate per square foot was €197.00, whereas the zone A rate was €487.

39. Mr. Crosse did not agree that Mr. Potter’s comparisons with the restaurant premises at

34 College Green. He did not agree that this was directly comparable. He said there was no comparison between College Green and the middle of Grafton Street. He said the overall rate applicable to that comparison was €74.50 per square foot. He said he did not understand how that supports anything like the figure he's adopting on the subject premises.

40. He said that 68 College Green was just a retail shop and yet Mr. Potter had analysed it on a square foot basis rather than on a zoning basis, but even at that it's only €69 per square foot. Mr. Crosse was of the view that you could not compare the trading locations of a building like that in College Green with the middle of Grafton Street which is deemed to be the prime retailing street in Ireland.

41. With regard to the comparison at 38 Dawson Street, Milano’s restaurant, again Mr.

Crosse was of the view that it's not Grafton Street and that on his analysis the figure was €80 per square foot. He questioned how this applied to Grafton Street.

42. With regard to the comparison with 18 Dawson Street, Specsavers, again Mr. Crosse responded that it's not a prime retail pitch. He said it's on the corner of Dawson Street and Molesworth Street and that originally it was an office user there. He said that he didn't understand how you could draw any comparison either in terms of location or structure. He said it was difficult to see how one could say that would influence the rents one should apply for a premises occupying a prime position on Grafton Street.

43. With regard to the comparison at 42, Fownes Street Lower, McDonald's, Mr. Crosse responded that again it was not Grafton Street.

44. Mr. Crosse acknowledged that he updated his figures for the floor area of 64 Grafton St, Canada Goose.

45. With regard to Mr. Potter's schedule of properties, Mr. Crosse gave evidence that the approach of adopting an overall rate per square foot is throwing up all different figures. He said that he did not believe it was as accurate as using a zoning approach and for arguments sake, he has Massimo Dutti at 65/66 Grafton Street. The valuer acting for the tenant in those negotiations provided him with an ITZA of €1643, and a zone A of €478. He said he was not aware of how they negotiated.

46. When Mr. Crosse was asked what he believed was the correct figure for Bewley’s at a rate per square foot he responded that he did not know. He said that he didn't have any supporting evidence for applying such a rate. He reiterated his view that zoning is a much tighter method of establishing a pattern on the Street. He said if one applies an overall annual rent to the Bewley’s premises for the ground floor of €717,850 per annum as Mr. Potter has done and if it is done on an ITZA basis, that comes out at a zone A rate of €602 per square foot. He said that he hadn't analysed his figures for the purpose of coming up with a per square foot rate.

47. Mr. Crosse was then cross examined with regard to the contents of his report and there was a dispute on the evidence as to whether the wall dividing the front and the back of the café existed at the time of the lease being granted in 1987. Mr. Crosse is of the view that this work was carried out by the tenant after acquiring the lease whereas Mr.

Potter was of the view that the wall had already been removed and that the plan attached to the lease was not accurate in this respect. Mr. Crosse was also cross examined with regard to whether he had followed the guidelines as set out by the Chartered Surveyor Information Paper. He was also asked to consider the point that greater weight be applied to evidence derived from units which are closer in size to the premises being valued. A guideline of ±50% is suggested. He was asked why he didn't reflect that or flag it in his report and he responded that he wanted to demonstrate on a new letting basis between a willing landlord and a willing tenant, the level of rent and then analyse it on a zoning basis.

48. He was also cross examined with regard to the display areas and the reason for valuing same at a lower rate. He confirmed his concern regarding the manner in which Skechers had preordained a range for a rent review, which is something that could not happen in the current situation. It was put to Mr. Crosse that Skechers’ ground floor rent was not dissimilar to the rent suggested by Mr. Crosse for the entirety of Bewley’s which is a premises of 18,000 square foot, as against 2,105 square feet for the ground floor of Sketchers. It was put to the witness that his suggested retail value was completely off the mark. Mr. Crosse acknowledged that he did not have any difficulty with the basement, the first and second floor and that the issue arises with regard to the ground floor. Mr. Crosse pointed out some differences between the two properties, such that Skechers has a frontage onto the street of approximately 46 feet where the subject premises has a trading frontage of 28 feet. He said it was a three-floored building as distinct from a five-storey front building and a four-storey rear building. Mr. Crosse went on to say that if you zone the ground floor of Skechers you get €407 for a ten-year period and €359 per square foot zone A on a five-year term.

49. It was put to Mr. Crosse that the rent per square foot for the ground floor of Canada Goose was at €193 euro, for Victoria’s Secret it was at €175 and for &Other Stories it was between €220 and €250. If you apply the same logic to the subject building, you get a rent per square foot of €124.25. After applying the 10% discount this would give a rent of €112 per square foot. It was put to the witness that there is no comparison anywhere to support that low level of rent. The witness responded stating that the comparisons in connection with this form of analysis on Bewley’s that none of them have been amortised on a rate per square feet basis on the ground floor. He said that notwithstanding the document issued by the Society of Chartered Surveyors, the practice of all valuers for retail premises on Grafton Street is to zone. The witness reiterated that it is not common practice in his profession to view properties such as this on a square footage basis, they rather to do so on the zoning basis. He said that when looking at transactions on Grafton Street they're always provided with an analysis on a zoning of the ground floor.

Mr. Crosse’s rental valuation of premises in current configuration is set out at page 155 of his report and same was read into evidence as follows: Rental Values of Premises in Current Configuration: Agreed NIA floor areas reflecting the current internal layout of the Premises: Total floor area of premises: 16,137 sq. ft Ground Floor (retail): 4,101 sq. ft ITZA 1,192 sq. ft

Zone A 491 sq. ft @ €427.5 psf €209,902 Zone B 507 sq. ft @ €214 psf €108,498 Zone C 480 sq. ft @ €107 psf €51,360 Remainder: 2,623 sq. ft @ €53 psf €139,019 Basement (kitchen/ancillary): 2,870 sq. ft Mezzanine(retail): 1,787 sq. ft First floor(retail): 4,126 sq. ft Second floor (public): 1,419 sq. ft Third floor (staff): 1,021 sq. ft Fourth floor (staff): 813 sq. ft

Valuation: Ground ITZA 1,192 sq. ft @€427.5 psf €509,580pax Basement 2,870 sq. ft @ €15 psf €43,050 pax Mezzanine 1,787 sq. ft @€25 psf € 44,675 pax First floor 4,126 sq. ft @€25 psf €103,150pax Second floor 1,419 sq. ft @€15 psf €21,285 pax Third floor 1,021 sq. ft @€10 psf €10,210 pax Fourth floor 813 sq. ft @€8 psf €6,504 pax Total €738,454 pax Discounts for SSPC -10% €73,845 Total: €664,609 pax

RENTAL VALUE CONFIGURATION BASED ON CONFIGURATION AT DATE OF GRANT OF LEASE Floor areas used reflect the NIA floor areas of the original internal layout as contained in the floor plans attaching to the Lease and calculated by Murphy Geospatial in their 1987 Lease Plan report. Total floor area of premises 18,018 sq. ft Ground Floor 4,678 sq. ft Zone A 421 sq. ft (retail) plus 111 sq. ft (elevated display) Zone B 525 sq. ft (retail) Zone C 254 sq. ft (retail) plus 340 sq. ft (offices) Front building separated from rear building by division wall, with limited opening on ground floor to facilitate internal circulation between front and rear buildings. Remainder 3,027 sq. ft (retail) Basement 4,352 sq. ft (retail/ ancillary) Mezzanine 628 sq. ft (storage) First Floor 1,833 sq. ft (retail/ caretakers) Second Floor 3,687 sq. ft (ancillary) Third Floor 2,184 sq. ft (ancillary) Fourth Floor 656 sq. ft (office)

Valuation Ground Front building Zone A(retail) 421 sq. ft @ €427.5 psf = €179,977 Plus (display) 111 sq. ft @ €100 psf= €11,100 Zone B (retail) 525 sq. ft @ €214 psf= €112,350 Zone C (retail) 254 sq. ft @ €107 psf= €27,178 Plus (office) 340 sq. ft @ €30 psf= €10,200 Division wall between front and rear building limiting internal circulation and therefore I have increased the 50% rent rate reduction from the rent rate applicable to Zone C to 75% to reflect the presence of this division wall.

Rear Building 3,027 sq. ft @€27 euro psf €81,729 Basement 4,352 sq. ft Front building(restaurant) 994 sq. ft @€20 psf €19,880

Division wall between front and rear building Rear building (kitchen/staff) 3,358 sq. ft @€15 psf= €50,370 Mezzanine (store) 628 sq. ft @ €10 psf= €6,280 First Front building (retail) 1,182 sq. ft @ €25 psf = €29,550

Void between front and rear building Rear building (caretakers) 651 sq. ft @ €10 psf= €6,510 Second Front Building 1,167 sq. ft @ €10 psf= €11,670 Void between front and rear building

Rear building 2,520 sq. ft @ €5 psf= €12,600 Third Floor Front building 912 sq. ft @€8 psf= €7,296 Void between front and rear building Rear building (ancillary) 1,272 sq. ft @€5 psf= €6,360 Fourth Front building 656 sq. ft @€5 psf= €3,280 €576,330 pax Discount for SSPC -10% €57,633 € 518,697 pax

Rental Values: Rental value of existing building €664,609 pax Rental value of improvements €145,912 pax Statutory rental value €518,697 pax

50. Mr. David Potter, a director of Savill’s Commercial was sworn in, examined and his report was admitted into evidence. He confirmed that he has been in practice for 35 years and that he specialises in rent reviews and landlord and tenant matters. He outlined that he is the retained rent review adviser on Dundrum Town Centre, Liffey Valley Shopping Centre, Jervis Street Shopping Centre, Ilac Shopping Centre & the Pavilion Shopping Centre. He said he was also active in Grafton Street. He confirmed that he was also involved in a number of large pub and restaurant reviews including the Ivy and Café en Seine, both on Dawson Street. He has just finished working on McDonalds in Temple Bar and in addition he acted on Marco Pierre White’s and a number of other restaurants.

51. He described the market at the rent renewal date of 6 August 2022, saying that it was quite good and that we had just come out of the Covid period. He said 2021 wasn’t quite as good but that in 2022 there was good interest and you had new occupiers such as Lego and Skechers, who took a deal in late 2022. He said that it was a feature of Grafton Street that there was a lack of larger units. He said that there were a lot of restrictions that applied to every building on Grafton Street. He said that there were more small shops available and that there was a lack of supply in the large shop category. He said that it would be an unusual opportunity to have a full-blown restaurant on Grafton Street and he said that he believed there would have been good demand for it at the time.

52. With regard to the location of Bewley’s, Mr. Potter gave evidence that the middle of the street would be considered the “primest” portion of the street and that that is where most of the occupiers want to be. He said that you could tell that from the quality of the occupiers such as Victoria’s Secret and & Other Stories and that this area is very close to Brown Thomas and Marks & Spencer’s. He said that there is a difference of 5-10% as you head towards the top and bottom of the Street. He said that this was also reflected in the vacancy rate.

53. Mr. Potter gave evidence that Bewley’s is an extraordinary building, that it is iconic and that it stands out in the Street. He said that he believed that there would be demand for it both as retail and as a restaurant location. He believed that it was one of only four buildings which have 4,000 square foot plus on the ground floor. The other ones are Victoria’s Secret, Massimo Dutti and AIB. He said that when it was let originally it had a basement restaurant, a ground floor restaurant and a first-floor restaurant. He said the basement is now gone – that it’s now ground floor, mezzanine and first floor restaurants. He said the overall square footage was similar, they’ve just changed what’s on each floor.

54. He confirmed that the original letting was a sale and leaseback. He went through the photos in his report and gave his opinion that the ground floor would look better if the mezzanine floors were not there. He said that the rear of the ground floor was a fantastic restaurant space. He said that the quality of this space attracted people into the restaurant.

55. He said that restaurant occupiers usually took a longer term than five years due to the cost of fitting out the restaurant space. He said in this case where the tenant is electing to take five years, it would be the norm for a landlord to seek a loaded rent to reflect that. He said the terms on most of the comparisons are ten years. He said that the term on Victoria’s Secret across the road is ten years and that you would expect a differential of 5-10% to allow for that. The longer the lease the more attractive terms the landlord would give it. The shorter the lease, the higher the rent the landlord would expect to compensate him for the risk that the tenant will walk away in five years’ time.

56. Mr. Potter was brought through page 13 of his report where he sets out the factors affecting rental values. He indicated that there had been difficulties with supply of larger retail and restaurant outlets. He said that tenants were incurring large additional expenses with planning and fit out of older buildings for the purpose of converting them to restaurant use. This had occurred with Soho on Drury Street and also with Lennan’s Yard on Dawson Street. He said that restaurant occupiers are prepared to go to considerable lengths to get the right property to make it work.

57. With regards to Bewley’s, he said that it is accepted that the location itself is probably the most sought-after commercial location in the country. It would be an unusual opportunity to get a restaurant on the street. He said that a lot of landlords prefer retailers because they are cleaner and an easier to deal with type of use. He said while this premises was limited to restaurant use, it would be an opportunity that would generate considerable demand from occupiers. He said it has been a restaurant for 100 years. He said it would be a very interesting opportunity. He said that he accepted that it would be difficult to get planning permission for any other kind of use. He said that he had looked at it as a restaurant and that he had valued it like a restaurant. He said that you value what the tenant is going to get and that he thinks that’s what he has done.

58. He said that the planning restriction had important implications for the valuation and as such, in his view the most correct way to value the property is as a restaurant. He did not think it’s correct to value it as retail, and then reverse back into some adjustment to a restaurant. He was of the view that it’s much more straightforward to actually value it upfront as a restaurant.

59. With regard to the information paper as issued by the Society, Mr. Potter confirmed that he was part of the working group that wrote the paper. He said that people were being far too rigid in their approach to zoning which was producing results that just weren’t logical. He said that for instance, buildings which didn’t have any zone D and zone C space were being compared with buildings that were deeper. There were difficulties from one street to another and also depending on the size of the unit. He said the paper is suggestive rather than prescriptive on account of there being so many variables. He said that the paper had been in place for twenty years and that he has never had anyone take issue with the contents of it to date.

60. With regard to restaurants, he said that a lot of these properties are period properties, and you can’t zone period properties because they don’t have shop fronts in a lot of cases. As such, when comparing one restaurant with another the logical thing to do is to compare them on an overall basis. He said that with restaurants, he would almost argue that nobody wants to sit in the first 20 feet inside the door, they want to sit further back into the restaurant. He said he thought the Harry Clarke room in Bewley’s is a good example as being a more desirable space within which to dine, than just inside the door. As such he was of the view that valuing the front part at a higher level is an approach that really doesn’t work with a restaurant, in his opinion.

He said that this is the reason for the caution in the guidance document that pubs and large restaurants are not necessarily suitable for zoning. He said this was because a restaurant could use the back part of the building to a much greater extent than a retailer.

61. He said that he did not believe it was appropriate to value Bewley’s on the basis of zoning. He said he believed it was much more valuable as a restaurant. He said that if you zone it you devalue it. He said that as such he had approached his valuation on an overall basis. He said that he considered what we’re offering to the market is a big restaurant in Dublin City Centre that occupiers like Hawksmoor, Ely, The Ivy, that these occupiers would consider this. He said that he believed that they would consider Grafton Street given that they had considered other City Centre locations.

62. He referenced the statement in the Guidance Note “Where zoning is applied it is also recommended the premises be considered on an overall basis as there are instances where zoning produces an anomalous result where zoning is applied.” He said that as such even where you were using zoning, it is good practice to do a check against the overall position per square foot.

63. Mr. Potter gave evidence that he did not believe it was correct to categorise Bewley’s as retail particularly as it is restricted to use as a restaurant. Further, he said that he had never seen anybody ever, in all his years of practice, put different rents on areas that are separated by non-structural partitions. He said that this approach did not in his view make any sense. He said that for instance a stud wall in a shop is ignored for valuation purposes. He said he did not believe that the ground floor space could be worth less than the first floor in another building. He said that in his view Mr.

Crosse’s assessment of this area at a quarter was an excessive adjustment. Further he said Mr. Crosse had deducted the porch area as though it did not exist. He said that he did not believe that the area should be discounted on account of previously being an elevated display area. He said whether elevated or not, he had never seen anyone try to argue that the display area isn’t fully zone A or that the entrance into the shop isn’t fully zone A. He said that while the floor areas were agreed between the parties, the zone A approach was not agreed. He said that for instance the jewellers would all have display at waist high level and that you would never consider deducting them from the zone area.

64. Mr. Potter gave evidence with regard to the zoning guidance note which cautioned about using comparators which are plus or minus 50% of the square footage of the subject property. He said that you should stay somewhat within the ballpark of similar sized properties when making comparisons. He said that the main comparison which Mr. Crosse relies on Canada Goose, falls outside that recommendation in terms of size.

65. He said that the valuation figure arrived at by the tenant’s valuer in relation to the ground floor also highlights the reason for the recommendation in the zoning paper that premises also be considered on an overall basis. He said that he was examining the tone of rents across the various reports, he said the overall rate on the original configuration for the ground floor is €79-now €81 per foot. He said that this was the same rate paid by Milano’s in Dawson Street and also by Hawksmoor in College Green. He said that to his mind, given Grafton Street is materially ahead of these locations. Further he said that for shallower buildings there needed to be an adjustment downwards on the zone rate, as they don’t have the cheaper space at the back. As such he said that logically this thinking applies in reverse when one is considering a deeper unit.

66. He said that the assessment of rent under the expired lease was somewhat unusual whereby it rentalised the front of the building and then applied the ratio of that to the balance of the building. It multiplied it by 40%, ignoring the back of the building.

67. He confirmed that the porches in Victoria’s Secret, & Other Stories and Massimo Dutti are all included in the zone A approach.

68. Mr. Potter than went through his comparison evidence which is set out at paragraph

10 of his report. He said that the way he looked at the property was that its essentially a 4,500 square foot ground floor commercial premises on Grafton Street and such the best way to determine appropriate rent is to look at the bigger units that were let on Grafton Street. Secondly, he said that it is a restaurant premises and therefore he had also looked at restaurant comparisons. The logic is that the hypothetical willing tenant for this building is looking for a restaurant premises in Dublin city centre. As such the rents that other restaurant occupiers pay is informative of the rent that this tenant would pay.

69. Mr. Potter went through each of the comparisons including Skechers, which was an open market letting in July 2022 for a term of ten years, with an average rent of €695,000 per annum, which gives a ground floor rate of €268 per sq. foot for a smaller premises (2,105sq ft). He said that the graduated rent did not cause a difficulty in terms of assessing the rate. He said that he had taken the minimum rent due over the period. He said that Mr. Crosse’s approach put the rent for the entirety of Bewley’s 18,000 sq. ft at the same level as the rent for just the ground floor of Skechers. He said he was of the opinion as a valuer that such an approach was not correct.

70. He said that Mr. Crosse has a figure of €576,360 before the discount for planning at page 157 of his second report. He also said that the subject property is superior to the Skechers building. He said the next comparison 26/27 Grafton Street, & Other Stories is also used by Mr. Crosse. He said the only difference between them are the rates adopted by Mr. Crosse for the upper floors which he said are a bit light at €20 per foot. He put €30 a foot on it and that comes out at €220 a foot overall, for a slightly bigger building than Skechers at a better location. Again, the comment is made that the ground floor of this building attracts a higher rent than the whole of Bewley’s even on Mr. Crosse’s figures.

71. The next comparison is Massimo Dutti 65/66 Grafton Street. He said it was a rent review with a very similar ground floor size of just over 4,000 sq. ft. He said the total quantum of the rent was €1,000,085 for a building that’s slightly smaller than the subject building and would be in a slightly poorer location. He said the overall rate is €197 per sq. ft. To reflect the configuration and slight quantum differential plus the valuation factors highlighted in his report, Mr. Potter put a figure of €175 per sq. ft for application to the Bewley’s premises.

72. The witness then went on to discuss Victoria’s Secret which is a comparison also used by Mr. Crosse. He said that he acted in the rent review for the landlord. He did not agree with making an adjustment for return frontage of one property and not for the other. He said that he had made no adjustment for either of them. He said the rent for this property was analysed at €1.5 million or at €175 a sq. ft. He said it was a slightly better configuration than Bewley’s and that he has adjusted for that.

73. Mr. Potter went on to consider the Hawksmoor restaurant. He said that he would not compare College Green with Grafton Street from a retail perspective. However, he was of the opinion that when valuing restaurant premises in Dublin City Centre, it was important to look at the rents that restaurants are actually paying. He said he believed that Grafton Street would attract rent at two or three times the rent at College Green. He gave an example of a property on Grafton Street rentalising at 2.85 times the rent on College Green. He said that the rent he was suggesting for Bewley’s was

2.3 times the rate for the College Green property. He said that was just a health check to see that the rent he was putting on Bewley’s was correct.

74. With the Milano’s comparison on Dawson Street, he said that essentially, he was taking the same approach. He said the rent review was in 2020 at €80 per sq. ft for a 3,300 sq. ft building. He said that this was the same overall rate as Mr. Crosse had adopted for Bewley’s and as such, that could not be correct for Grafton Street, which was a far better location. He went on to consider the Specsavers property and made the comment that Grafton Street attracts 2.29 times the Dawson Street rate. He reiterated that the rate he had applied was 2.18 times for Bewley’s.

75. He referred to McDonalds on Fownes Street Lower which has an overall rate of €99 a foot. He said while Temple Bar was a good location for a restaurant it was not as good as Grafton Street. He also referred to the Canada Goose property which only has a ground floor area of 1,800. He said that this would not be an obvious comparison for a 4,600 sq. ft unit in his opinion. He said the net effective zone A rate at €492 per sq. ft was materially different to the rate of €418 zone A suggested by Mr.

Crosse. He also made the comment that Bewley’s is in a superior location.

76. He also made the comment that the ground floor rent for Canada Goose is €373,760 per annum and a ground floor rent suggested by Mr. Crosse for Bewley’s as a restaurant is €371,000, despite the fact that Bewley’s is 2.5 times the size on the ground floor. He said it struck him as odd and incongruous that Bewley’s would have the same value as a 1,800 sq. ft unit, such as Canada Goose. He said that the Guidance Note from the Society suggests that if zoning is appropriate, you also look at it on an overall basis. He said that it had to sound alarm bells where the valuation numbers came in the same for the ground floor of a much bigger building in a better location.

77. Mr. Potter then went through page 36 of his report where he sets out the information obtained from the comparisons to Bewley’s, firstly in the context of the current configuration. He said that the retail ones range from €268 a foot down to €175 a foot for the largest. He said as Bewley’s was one of the larger properties he has adopted €175 as suggested by Victoria’s Secret, which is the biggest unit on the street.

The other comparisons being smaller attract higher rates. He said that he has broken out two restaurant rates separately. Hawksmoor at €74 a foot and Milano’s at €81 a foot. He said that when you double those rates, reflecting the difference in location, that supports a rate of €175 a foot for Bewley’s.

78. He agreed that the toilet space is ordinarily rentalised and that this had occurred in all of the comparisons. Mr. Potter went through his figures for the valuation on the current configuration of the rest of the Bewley’s premises. He also went through his figures on the original configuration, and these are set out in his report. He confirmed that there was slightly more floor space in the original configuration. He explained that previously the premises was valued by taking the value of the front part and multiplying it by 1.4 and that gave you your value. He said it was an artificial construct at the time and that he did not know the reasons for it. He said he did not believe there was a barrier wall present between the front and the back of the building at the time of the last review in 1987. He said he believed the plan annexed to the lease at that time actually pre-dates the condition in which the premises was handed over in 1987. He said that in a subsequent plan that was drawn up for the 1998 licence for works, shows clearly that the barrier wall wasn’t a barrier wall, and it was in fact folding doors with the central mahogany door in place. As such it was not a structural wall at the time of the 1987 rent review. He said there were several pages of works served on the landlord in 1987 by the tenant which do not include a description of works to the shop front or to the barrier wall. He said that the plan attached to the lease was an earlier plan that did not depict accurately the position regarding the barrier wall at that time. He also referred to a photo from early 1987 which showed the folding doors in place. He said these were readily movable and as such should not have a negative impact on the valuation. Likewise, he said that the stud partition walls such as the office spaces, could be ignored for valuation purposes.

He also referred to the report from CBRE which confirmed that the buildings were integrated at ground and basement levels. He said by virtue of the tenant’s improvements they were now also integrated at first floor level. He said that a number of agents had referred to the space as one operational area.

79. Mr. Potter gave further evidence regarding the fact that there was no wall underneath the wall at ground level in a 1946 plan. He said that in his view it was unlikely that such a wall was removed from the basement but had been left in place on the ground floor. He also said that it was likely that the office when it was there was a roofless partition. He referred to a photograph in this regard.

80. He said that he had never seen the display areas excluded for valuation purposes.

They are usually valued as zone A space.

81. Mr. Potter went on to say that he did not believe it was appropriate to value the premises on a zoning basis. He said if you take that approach here you are valuing a restaurant as a shop. You’re essentially saying that the value of the restaurant space at the back is the same as a changing room or storage at the back of a shop. Mr.

Crosse has gone even further as he has said that the main dining area is only worth half a store at the back of the shop. Mr. Potter said he didn’t believe that to be the case. He said it was good usable space from a restaurant occupier’s point of view, it’s very valuable space and certainly an awful lot more valuable than half the rear of a shop rate. Further, if zoning was used, the valuation should also have been looked at from the perspective of an overall rate. He said that Mr. Crosse had not taken this approach.

82. Mr. Potter said that he was of the view that Mr. Crosse took an incorrect approach when valuing the area behind the so-called barrier wall at a different level than the rest of what he described as zone C and zone D. He said that in his view it should be zoned at a full zone D rate. He said the division of front and back in earlier plans was simply for valuation purposes, that it was not an actual wall. He also said that he believed an occupier coming in would make good use of the basement space. He said it was not correct for Mr. Crosse to split the basement into front and rear as there was no wall in this space even on the original configuration.

83. There is no disagreement regarding valuation of the mezzanine space at €10 per sq. ft.

The witness compared the figures at page 53 of his own report with those at page 157 of Mr. Crosse’s report. Mr. Potter goes through the figures he puts on the various parts of the building both in it’s original and in it’s current configuration.

84. Mr. Potter was then cross-examined on the content of his report. He was asked about the continuing reduction in rents in Grafton Street. In particular he was asked about the rent reduction at 4/5 Grafton Street in respect of Abrakebabra which went from €436,000 in 2004 to €205,000 in 2009, to €250,000 in 2014 and then to €182,000 in November, a sever reduction for a restaurant premises. Mr. Potter responded that there was an issue in that case as the outgoing tenant had left the premises in a poor condition, that the building didn’t have gas and there were difficulties letting it. He said the building was also very small so it’s not comparable to the Bewley’s building.

Counsel responded that Mr. Crosse was making the point regarding the reduction in rent for a restaurant, not that it was a comparable property. The witness responded that the rent was reduced because it was a small property and that there was not material demand for such a property on the street. He said that the rents on the larger units did not reduce like that. As such he said they were not comparing like with like.

85. Mr. Potter was also cross-examined regarding his view that there should be an uplift on the rent on account of the short term of the lease. He was also asked whether a tenant would be looking for a reduction on the rent in order to fit the place out. He responded that all comparisons have been adjusted to allow for rent-free in fitting out.

He added that arguably this premises doesn’t need a rent-free period because it is a fitted-out restaurant at the review date, at the renewal date anyway. However, he said that all the comparison properties had that allowance included. He said the landlord would expect a higher rent where the property was let for a shorter period.

86. Mr. Potter was also cross examined regarding the methodology for valuing the property on a zoning basis with a check against the overall basis. It was pointed out that he had only used the overall basis and not the zoning method with which he agreed. He said he had done this because it was a restaurant. It was also pointed out that he had analysed his comparisons on an overall basis rather than a zoning basis with which he agreed. He responded that logically it made sense to treat his comparisons in a similar manner as the subject property, that is by valuing same on an overall basis.

87. Mr. Potter agreed that restaurant valuation is different from retail. He was asked about the evidence produced for restaurants which goes nowhere near the level of €175 a square foot. The highest was €99 per sq. ft? He responded that this was for much poorer locations. He said he thought it was accepted by everyone that Grafton Street is a much stronger commercial location than Temple Bar, College Green or Dawson Street. He said that those rents must be adjusted substantially and that he had provided evidence of the relativity between those two streets, and that he believed the adjustment factors he applied were appropriate. It was put to him that he didn’t have any evidence of any restaurant paying in the order of €175 per sq. foot, not on Grafton Street or anywhere else. He responded that he is valuing Grafton Street and that to his knowledge there was no letting of a 4,600 sq. ft restaurant unit on Grafton Street that he could remember. He said that he believed if it was made available that it would achieve €175. He said that tenants don’t pay based on zoning, they pay based on the overall rate for the floor area they can use. He said that restaurants will pay a rate which is comparable to the retail rate, although he admitted not having any evidence for this point.

88. Mr. Potter was cross-examined regarding the calculation of rent as between Bewley’s and the & Other Stories building. He confirmed that he had an issue with Mr.

Crosse’s retail valuation of these two properties as being broadly similar notwithstanding the difference in size between the two properties. He asked how can a building that’s twice as big be worth the same rent, both based on retail use?

89. He was asked about his reference to a non-existent structural barrier which he explained. He said that Mr. Crosse had produced a photo from 1963 that was not an accurate depiction of the space in 1987. He also did not agree with the approach to valuation of the building that might have been taken 35 years ago, as being relevant to his considerations on valuation. He said that there was no logic to his mind in trying to split the building. He said that the parties came up with an artificial rent review provision. He said all of this falls away on renewal because it reverts back to the rent to be determined under the Act. As such, he said that clause is now irrelevant and what’s relevant now is what the Act says, which is that you value the building. We don’t know why the parties used the mechanism that they used at that time however he said it was no longer relevant for determining the rent. Mr. Potter did not accept that the tenant had improved the property in particular he questioned the quality of the mezzanine floor with low ceiling heights.

90. Mr. Potter gave evidence that the office areas had been removed as illustrated by the 1987 photographs. He also referenced the photo from January 1987 as depicting the glass panels which he said could not have been put in place if those walls were still there.

91. Mr. Potter agreed that is valuation on a zoned basis would come out between €595 and €602 – he agreed to call it €600. He was asked was there any evidence anywhere to support a figure at that level. He said he didn’t have any evidence for a zoning figure as he hadn’t looked at it on that basis. He said he had looked at what other restaurants were paying in other locations and as such he had looked at it on a broader basis. He said he thought it was much more realistic to take the overall rate per sq. ft, which he believed was the way a restaurant operator would look at it. He said that Mr. Crosse had taken a zone A rate which was very specific to retail and applied it.

But he said the overall rate was not specific to retail and therefore in his view gave a much cleaner, clearer impression of the rent that a tenant would pay for this building.

92. When questioned as to how he came up for a valuation for a restaurant, which would be higher than retail rent, Mr. Potter responded that it could well be that it’s been a restaurant for 100 years, the fact that it’s on the best location in the country, and the fact that there is big demand from restaurant occupiers for these big units. As such, he said, it could well be that someone would pay more than a retail rent. He said he can’t prove it because nobody has rented a 4,000 sq. ft, 20,000 sq. ft building on Grafton Street to a restaurant. He said that equally Mr. Crosse had decided that it’s 10% less value and that there’s no evidence for that either. He said that he hadn’t loaded the property for fit out. Nor was he taking account of the goodwill attaching to the premises given it had been a restaurant for 100 years. He said it was just the use that he had valued not the goodwill. He said that Grafton Street remained busy after 6pm and that while Bewley’s is surrounded by a lot of retail there are also restaurants on the street and in the immediate vicinity.

93. Mr. Potter takes a rate of €175 per sq. ft for the ground floor and arrives at an overall rent of €1,000,000 as at the renewal date of 6 August 2022. This is the same rate per sq. ft for the ground floor as Victoria’s Secret and comes in lower than ground floor rates for Skechers (€268 per sq. ft), & Other Stories (€220 per sq. ft) and Massimo Dutti (€197 per sq. ft). He puts the original configuration at a figure of €1,092, 842 and as such he does not attribute any value in rental terms, to the approvements made by the tenant.

Submissions for the defendants

94. Mr. O’Neill SC on behalf of the defendant outlined in submissions that there are completely different approaches adopted by the two valuers in this case, resulting in quite different recommended rental levels. He says Mr. Crosse treats the premises as retail but at the same time he discounts Bewley’s because it can’t be used as retail, because of the need for planning permission and also on account of the scheme adopted by Dublin City Council in relation to Grafton Street. More fundamentally, it is submitted that he ignores the recommendations of his own professional body, the Society of Chartered Surveyors in Ireland. They say that zoning isn’t suitable for large restaurants. It is submitted that even if zoning was suitable, Mr. Crosse then ignores the recommendation in the Guidelines that when using zoning, you should also look at the premises on an overall basis.

95. It is submitted that his main comparison is Canada Goose which again ignores another recommendation in the Guidelines that less weight be applied to comparisons which fall outside the plus or minus 50%, in the context of size. Yet Mr. Crosse himself stresses that he believes size to be the main criterion when assessing premises under the Act. It is submitted that he ignores Skechers which occurs around the time of the valuation date. He says he ignores that as the rent was graduated over a number of years. However, Mr. Potter has said that is an easy exercise to identify the real rent being paid over the term of the lease. It is submitted that having looked at the matter from a zoning perspective, he then wrongly, it is suggested, refuses to look at the premises on an overall basis. It is submitted that if he did do that it would throw up an enormous disparity. He uses three comparisons - Canada Goose which is rent per sq. ft of €193 (ground floor), Victoria’s Secret €175 per sq. ft and & Other Stories €220 per sq. ft. Yet he suggests a rent of €112 per sq. ft for the ground floor of Bewley’s. It is submitted that that doesn’t stand up.

96. It was submitted that while the Guidelines are not mandatory it is important to notice their significance. Reference was made to the paragraph contained therein as follows:

“Members should note that when an allegation of professional negligence is made against a surveyor, a court or tribunal may take account of any relevant information papers…published by SCSI in deciding whether or not the member has acted with reasonable competence.”

97. It was submitted that this document identifies the correct practice in valuing a premises, and that if you don’t follow that practice, you may be found to be negligent.

98. It is submitted that Mr. Potter does follow the Guidelines in that he doesn’t value on a zoning basis, as the Guidelines say he shouldn’t, and instead he values on a rental per sq. ft basis, which it is submitted is the correct approach.

99. With reference to the issue of improvements, it is submitted that Mr. Crosse reduces the value between the current and the original configuration in a number of areas such as the display windows, reduced from €427.50 to €100 without explanation; the next issue is the differentiation between the original and the existing configuration in relation to the barrier wall, that term is used for identification purposes only. It is submitted that we have clearly seen that the wall was removed at the time the lease was granted. Reference is made to the photograph from 28 January 1987, the provenance of which is from John Duffy Design Group the tenant’s advisors, via Bewley’s discovery. It is submitted that this photo and other documents submitted with it manifestly show that the barrier wall and offices were gone at the time of grant of the lease. In any event, it is submitted that the measurement guidelines provide that one ignores the existence of non-structural walls, partitions etc and that this is referenced in Mr. Potter’s report which sets out the SCSI Measuring Practice Guidance Notes.

100. It is submitted that the John Duffy Design Group report refers to the “existing glass and wooden panelled screen wall and entrance doors which separate the main café area to the rear from the front part of the building are to be removed.” As such it is submitted that the structure then in existence is not described as a structural wall.

It was pointed out that Mr. Crosse had said in answer to the fact that the wall wasn’t a structural wall: “It was a barrier limiting access between…it was a barrier.

Irrespective of whether it was structural or otherwise, it was a barrier that made an egg timer out of getting from the front building to the back building.”

101. As such, it was submitted that in these circumstances a non-structural barrier could be ignored for valuation purposes. It is submitted that there are not two separate buildings as argued for the plaintiff. It is submitted that Mr. Crosse’s approach to the figures even on a zoning basis does not comply with the Guidelines.

Further, given the use of the premises as a restaurant it is submitted that the valuation of the back area does not fall to the extent put forward by Mr. Crosse. It is submitted that the valuation put forward by Mr. Potter is much more realistic.

Submissions for the plaintiff

102. Mr. Ralston SC outlined the task for the Court which is to find the gross rent as defined by the 1980 Act. He said that the SCSI paper has been put before the Court as if it’s almost an equal statute. He draws attention to the first page of the paper which reads: “This is an information paper (IP). Information papers are intended to provide information and explanation to SCSI members on specific topics of relevance to the profession. The function of this paper is not to recommend or advise on professional procedure to be followed by members.”

103. It is submitted that it follows that Mr. Crosse’s approach, which was to adopt a zoning method, which is widely accepted, was perfectly permissible and nothing in that document says otherwise. What it does say, is that zoning should be treated with caution, and that, it is submitted, is only common sense. It is pointed out that Mr.

Potter agreed with counsel when it was suggested to him that different methods of valuation had their validity, provided you were comparing like with like. That, it was submitted, is the essential art of valuation, to be able to compare unequal buildings such as the ultra-modern Victoria’s Secret to a hundred-year-old Bewley’s. He said this was like comparing chalk and cheese. They are completely separate and different kinds of building, and surveyors use different techniques of comparison and then use their own judgment to interpolate those transactions.

104. It is submitted that Mr. Potter has no comparison for a restaurant higher than €99 per sq. ft. He said that there aren’t any on Grafton Street. He said he was going to apply a rate equivalent to Grafton Street shops. It is submitted that Mr. Potter didn’t follow the Guidelines in valuing those shops as zoning was the correct method.

While each method has its own validity provided you compare like with like – on Mr.

Crosse’s analysis you come out with a figure of €602 on a zone A basis. Mr. Potter didn’t disagree with that – so that is €100 sq. ft more than any of his comparators.

105. It is submitted that Mr. Crosse’s figure comes out at €123 per sq. ft on a ground floor basis rather than the figure put forward of €112. It is submitted that the display areas are minimal and should not make a significant difference.

106. It is submitted that there is no real evidence of a restaurant rent in Grafton Street and that the two valuers have taken different views. Mr. Potter has suggested that if he takes a retail rent in College Green as a fraction of a rent in Grafton Street, then the Grafton Street property should be two or three times higher. It is submitted that that may be so for retail, but there is absolutely no evidence that that is applicable to restaurants. There is no evidence that Grafton Street itself, which is a high fashion retail area, is a particularly good place to have a restaurant. It is submitted that there is no evidence of any restaurant rents anywhere near the level being proposed by Mr.

Potter.

107. In conclusion, it is submitted that the Court has the task of divining the differences between these two approaches. That there is no absolute method of doing it – each valuer has provided an opinion, they base it on their experience, and they base it on the available evidence. However, as Mr. Potter says there hasn’t been a restaurant like Bewley’s that has come up for letting.

Decision

108. The court has heard the evidence of each expert valuer for both the plaintiff and the defendant. The court has also heard the submissions of counsel for each party.

In essence each expert takes an entirely different approach in terms of the methodology applied when assessing the subject premises and considering comparable properties.

109. Mr. Crosse for the plaintiff assesses the property on a zoning basis. Whereas Mr. Potter for the defendant assesses the property on a rate per square foot. He also looks at the rents achieved by restaurants in Dublin City Centre and applies a multiplier.

110. Having heard the evidence of each of these experts and having considered the provisions of Section 23 of the Landlord and Tenant (Amendment) Act 1980, this court is satisfied that the zoning method of valuation put forward by the plaintiff’s expert is the industry standard when assessing the valuation of a commercial premises at this location in Grafton Street. While Bewley’s is a restaurant, given it’s location, the valuation of the building is heavily influenced by the surrounding retail. Having said that the court also accepts the proposition submitted on behalf of the defendant that a valuation based on zoning should be checked against the overall position on a price per square foot basis. Further, when considering the large dining area to the rear of Bewley’s, the Court is of the opinion that it is useful to have regard to the rents paid by tenants for City Centre restaurants. The Court is not satisfied that there is any precedent for applying a multiplier to this figure in the context of restaurant properties situate on Grafton Street. There is no evidence of a restaurant occupier paying in excess of €99 per sq. ft anywhere in the city. This Court must assess the rent on the basis of what a willing lessee, not already in occupation, would give and a willing lessor would take for the tenement, in each case on the basis of vacant possession.

The Court does not believe that a willing tenant would enter into a transaction that involves use of a multiplier as against rents paid by other restaurant operators in the City, and that such a tenant would accept such a method of calculation. The Court has the difficult task of separating Bewley’s from its goodwill, and in doing so it is clear that as a vacant building it offers an extraordinary opportunity to any willing tenant in the open market seeking a restaurant opportunity.

111. The allowance for improvements is that which in the opinion of the Court is attributable to improvements made by the tenant or his predecessors. The Court finds that in so far as there was a barrier between the front and the rear of the building at the time of grant of the lease in 1987, this was not a permanent or structural wall and as such same can be ignored for valuation purposes.

112. Further, the Court is of the opinion that the square footage attributable to the porch, display areas, offices with partition walls and lavatories must also be included for valuation purposes, which appears to be the industry norm and also occurred in the assessment of comparator properties.

113. The court is mindful that while useful comparisons have been drawn by each expert for the purpose of assessing the value of the subject premises, the unique character of Bewley’s Cafe, internally and externally highlight the limitations of comparison. This is particularly the case where many of the comparisons comprised large modern retail premises with wider frontage. In addition, very few of these properties comprised protected structures nor were they limited in terms of their use, as is likely to be the case with the subject premises.

114. Mr. Crosse has taken the evidence of the new letting of a protected structure, that is Canada Goose, and has analysed that at €427.50 per sq. ft zone A and has applied that in terms of zone A area of the subject premises. Mr. Potter disagrees with this comparison given the smaller size of the Canada Goose premises, being over 50% less in floor area. He states that this goes against the Guidelines provided by the Society. Mr. Potter places a greater emphasis on the Victoria’s Secret transaction, which was reviewed by agreement and as such, it is not an open market situation, as required by the Act. The Court is satisfied that given the very particular niche occupied by Bewley’s as a protected structure on Grafton Street, that even though Canada Goose is a smaller premises, the fact that it is an open market transaction of a protected structure, gives it greater weight for comparison purposes. It is, in the opinion of the court, a more likely indication of where a willing tenant and willing landlord might meet in terms of rental values. As such the Court accepts the base figure put forward on behalf of the plaintiff in the sum of €427.50 per sq. ft zone A.

115. The Court is of the opinion that a willing tenant and a willing landlord would not treat the rear part of the ground floor, a very special dining space surrounded by beautiful stained-glass windows, as though same merely comprised storage or utility space. As such, the court has applied a rate of €74 per square foot to that section. In the opinion of the Court, based on the evidence heard, this figure is reflective of rates charged per square foot for a restaurant in the City Centre area. The court cites the example of Hawksmoor restaurant at 34 College Green in this regard. The court does not agree that this rate should be adjusted by a multiplier as suggested by the expert for the defendant as there was no evidence before this court that restaurants pay rates in excess of €99 per square foot at any location in the city centre. By applying this increased rate to the rear D section of the ground floor area, the court is cognisant of the fact that this area comprises a dining space of unique character in its current configuration which includes the stained-glass windows which were created by the well-known artist Harry Clarke in 1928. The court notes the judgment of the Court of Appeal, delivered on 31 July 2024 in relation to same. In summary, this court is taking an approach to valuing on a zoned basis with an uplift for the large restaurant area to the rear of the ground floor at the premises. The Court’s calculations are set out below.

116. As such the court assesses the gross rent at the date of valuation in the sum of €703,018.80 per annum with such minor adjustments as may be necessary for the purpose of including the restroom areas. The court agrees with the proposition put forward on behalf of the defendant that an uplift is in order given the short duration of the lease. As such the court applies a 5% uplift to that figure bringing it to €738,169.74. In checking this figure against overall rates, it is noted that this gives rise to a figure of €144 per sq. ft at ground floor level without adjustment for rental improvement, which is minimal in any event. This is certainly at the lower end of comparisons for Grafton Street on a ground floor per sq. ft basis with €175 being the next nearest figure for Victoria’s Secret, which was a renewal as opposed to a new letting. The Court is mindful that many of the comparisons comprise modern properties which are a very different prospect in terms of retail space at that location. The figure of €144 per sq. ft is considerably higher than the rents achieved by other restaurants in the City Centre, the highest of which is €99 per sq. ft, on a ground floor basis. The Court is satisfied that the rental figure when viewed from an overall perspective, fairly represents what a willing tenant would pay and what a willing landlord would take, for the subject premises as of August 2022 on a five-year lease.

117. In circumstances where reliance has been placed on the expertise of each expert and also on the submissions made on behalf of both parties, the Court makes no order as to costs.

118. Liberty to apply.

Court’s calculations using the zoning basis with an adjustment for large restaurant area to rear: The court assesses the figures as follows using the zoning basis: Current configuration 2022: A)491 square feet @ €427.5 per square foot €209,902.50 B) 507 square feet @ €214 per square foot €108,498 C) 480 square feet @ €107 per square foot €51,360 Remainder: D)2,623 square feet @ €74 per square foot €194,102 Total for ground floor: €563,862.50

Basement: €43,050 Mezzanine: €44,675 First floor: €103,150 Second floor: €21,285 Third floor: €10,210 Fourth floor €6,504 Toilets to be added:

- Total: €792,736.50

- 10% SSPC Discount Total €713,462.85 pax

1987 Configuration: A)421 square feet @ €427.5 per square foot €179,977.5 Display: 111 square feet @ €427.5 per square foot €47,452.5 B) 525 square feet @ €214 per square foot €112,350 C) 254 square feet @ €107 per square foot €27,178 Office: 340 square feet @ €107 per square foot €36,380 Rear D: 3,027 square feet @€74 euro per square foot €223,998 Total ground floor: €627,336

Basement: Front building: 994 square feet @ €20 per square foot €19,880 Rear Building: 3,358 square feet @ €15 per square foot €50,370 Mezzanine: 628 square feet @ €10 per square foot €6,280 First floor: 1,182 square feet @ 25 euro per square foot €29,550 Rear (caretaker): 651 square foot @ €10 per square foot €6,510 Second floor: 1,167 square feet @ €10 per square foot €11,670 Rear Building: 2,520 square feet @ €5 per square foot €12,600 Third floor: 912 square feet @ €8 per square foot €7,296 Rear Building: 1,272 square feet @ €5 per square foot €6,360 Fourth floor: 656 square feet at €5 per square foot €3,280 Total floor area 781,132 Total less 10% €703,018.80

Rental value of existing building: €713,462.85 Improvements with an increase in rental value of (€10,444.05)

Statutory rental value as set by the Court as of August 2022:

€703,018.80 pax gross rent To be adjusted 5% upwards for short lease duration €738,169.74 (To be adjusted for inclusion of restroom space)

Appearances

For the plaintiff: Mr. Gavin Ralston SC & Mr. David Whelan SC instructed by A&L Goodbody LLP.

For the Defendant: Mr. Hugh O’Neill SC & Mr. Ross Aylward BL instructed by Eversheds Sutherland LLP.