COVID-19 – Impact on rent review
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We are all navigating uncharted waters as business and society faces up to the impact of COVID-19. We very much hope you and your loved ones remain in good health.
Please be assured that Fieldfisher is continuing to work with clients to navigate COVID-19 related issues and on business as usual needs. Do get in touch with us if you would like to chat anything through.
It may appear counter-intuitive in a crisis of the present kind to contemplate reviewing rents under commercial leases, particularly those where reviews are underpinned by an 'upwards only' requirement.
But experience of previous crises indicates that where rental growth was establishing itself before a crisis, a rent review which results in a rent increase is by no means out of the question.
Rent review date
Key to this is the relevant rent review date by reference to which the valuation is made.
Case law supports the position that post-review date events are not relevant on review. This is principally because those events would not have been known about in the market at that time.
By contrast, post-review date evidence – in the form of comparable transactions and the like – may be relevant, although its usefulness is reduced the further behind it has left the rent review date.
In crises such as the current COVID-19 pandemic, which has caused the UK government to order the closure or temporary abandonment of non-essential business premises, post-review date evidence faces the further difficulty that it may not be possible to decouple it from the distorting effect of post-review date events.
Factual evidence
The position may become crucially one of factual evidence.
During the banking crisis in 2008, lawyers and their commercial property clients found themselves having to prove – in relation to rent review dates of 29 September for example – at exactly what time (US and UK) on that date certain events and announcements took place.
It is not merely a matter of the timing of the events themselves, but of what was known about them in the relevant markets at the rent review date.
Most rent reviews do not require landlords to trigger a review within a particular time frame, and most tenants will be preoccupied by other considerations.
So rent reviews may be triggered some time after the review date, when things have returned to relative normality.
Valuation evidence
In 2009, Fieldfisher acted on one London multi-let office building where rental increases were still obtained by the landlord, but at materially different levels depending on whether the review date had been 24 June, 29 September or 25 December 2008, and on the differing evidence of the valuation impact as at each date.
It is therefore important for landlords and tenants with rent reviews in 2020, and potentially into 2021, to try to keep information on what they – and the market in which they operate – knew about coronavirus, any estimations as to its implications and how that featured in their decision-making processes at relevant times.
There are already ongoing rent reviews in the market, where these issues are coming to the fore.
If you have any questions or concerns about rent reviews, Fieldfisher's specialist rent review team (which is one of the leading teams in the UK) is able to provide further specific advice on all of the issues raised in this article.
Our specialist rent review team: Lesley Webber OBE; Jamie Mangan; Antony Phillips; Owen Talfan Davies.