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A significant number of leases may contain a rent review that falls to be reviewed this year. In the case of a typical open market rent review, the revised rent will be based on the amount of rent that the property would command if let on the open market today.
In this current time, when the government has forced most non-essential properties to be closed if may be assumed, that many properties would attract much less rent than they would have at the beginning of the year.
Although the impacts of this pandemic will be temporary, it is difficult to predict how the economy will be impacted over the rest of the year and into the future. Commercial landlords may wish to consider delaying any rent reviews due in 2020 or 2021, however, it is unclear to what extent the economy will struggle as a result of COVID-19 and when it is likely to recover.
In most cases, rent review provisions are upwards only and whilst landlords may not see an increase in rents they will certainly not normally be revised downwards.
Properly drafted open market rent review provisions usually make an assumption that there is a willing landlord and a willing tenant who wishes to take a lease of the property. The fact that tenants looking for premises at the moment are few and far between should only be temporary and therefore the hypothetical, willing tenant should be willing to make a bid for a property based on long term occupational objectives. Also, the courts have normally assumed that there is a willing tenant and so tenants cannot argue that there is no-one that would be willing to take the property and therefore there can be no effective rent review.
Landlords are also helped if the rent review provisions contain an assumption that the property can be lawfully used for the permitted use. If this assumption exists in the rent review clause, tenants cannot argue that there should be no rent review, if in fact, due to the lockdown measures their occupation during the crisis would be unlawful.
The date of the review is also going to be relevant and it is important to remember that post review date events are not considered relevant on rent review since those events would not have been known about in the market at rent review. In contrast, post-event review evidence by way of comparable are relevant although the further away from the date of the relevant event the comparable is then the less relevant it is. It is advised that landlords and tenants try to retain information about what they knew about coronavirus and how it influenced any decision making processes at the relevant time.
Landlords and tenants will not be in a rush to try to agree on rent reviews at the moment.
We also recommend paying close attention to any new government guidance at www.gov.uk and following our COVID-19 blog series.