Covid-19 and rent review
2 April 2020(2020 Apr) – At rent review and lease renewal, the impact of the respiratory disease COVID-19, commonly known as Coronavirus, highlights two factors that are particularly important in negotiation and rental valuation: (1) post-review evidence and (2) post-review event. From case-law, the principles are reasonably straightforward to understand, even if not always appreciated!
(1) Post-review evidence. The principle is that transactions after a review/valuation date are generally admissible in evidence. However, the weight to be given to such evidence is a matter for assessment. The longer the period of time between the valuation date and the post-review date comparable, the less weight the evidence may carry.
(2) Post-review event. A post-review event is inadmissible as evidence, because what happened after the valuation date is not a foreseeable event on the valuation date. The parties are not entitled to take into account subsequent events which showed how possibilities turned out: to do so would introduce knowledge not available at the valuation date.
Clearly one can have regard to events that have actually occurred, or circumstances which actually existed, at any time up to the valuation date. Such are “known knowns” on the valuation date. ‘Known knowns” may include transactions on comparable properties, and other general events which may affect property values.
One can also have regard to “known unknowns” – such expectation of future events as might exist at the valuation date, provided that those would be matters that would be known in the hypothetical market at the valuation date. Expectations of future events often affect property values at a given date: for example, events at a national level, such as changes in interest rates, or changes in property taxation, or anticipated local events.
However, actual future events must be disregarded, except to the extent they were foreseeable and actually foreseen as at the valuation date. Landlord and tenant cannot know for certain as at the valuation date what might happen a few months after they agree a rent. They can only be credited with the degree of optimism or pessimism which existed in the market on the valuation date.
Coronavirus? On 31 December 2019, the disease, now known as Covid-19, outbreak started in Wuhan, China. 31 January 2020: the first Coronavirus cases in UK. Please click here for a time line.
Whether 31 January 2020 will generally be accepted as the effective date in the context of a post-review event, I shall reason accordingly.
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