In depth

Coronavirus: the challenge of assessing market value

Gateley Hamer

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With the unexpected and unprecedented outbreak of the coronavirus, there are a number of imminent implications that will affect the world of compulsory purchase that need to be considered now. 

 

  1. Market value

    For compulsory purchase claims the valuation date is generally the date of possession, which usually follows a minimum period of three months’ notice. 

    Ten days ago, the property market was relatively stable, with plenty of transactions to be relied upon for comparable purposes in most sectors. We knew about coronavirus but in the UK it wasn’t at the forefront of our minds, and there was no evidence that it was likely to have any significant impact on the property market… 10 days ago suddenly feels like a lifetime.

    On 11th March, WHO labelled the outbreak a global pandemic and every day since we’ve witnessed a steep escalation of the virus impact on every facet of life. In that time, it’s ripped through the heart of the leisure, hotels and restaurant sectors, and caused so much upheaval to working life that every professional services businesses out there must be reviewing whether it really needs so much real estate when we eventually get through this desperate period.

    Given what’s happened in the past 10 days, good luck to anybody instructed to assess the market value of an office or leisure-related property where the valuation date just happens to have landed in the past few days, or where it lands in the next few weeks. In fact, valuing any site or property over the next few weeks will be a huge challenge, and one which will provide valuers with terrifying flashbacks to the weeks and months preceding the start of the global financial crisis12 years ago.

    The RICS has published a coronavirus ‘valuation uncertainty clause’ that we are all required to include in any valuations for the foreseeable future, but frankly, other than covering our own backs, that will be of no help in trying to reach settlements…..and, without a doubt, most claimants need settlements to be reached more quickly than ever right now.

    An idea (which undoubtedly few, if any, Acquiring Authorities (AAs) will take up) to help settlements to be achieved quickly and without incurring the costs of litigation, might be for AAs to agree that, notwithstanding the statutory provisions, the valuation date for any compulsory purchases that just happen to have fallen during this period be 10th March (i.e. one day prior to the WHO announcement….the last time the UK property market retained a semblance of normality). 
     
  2. Property cost estimates (PCEs)

    All PCEs undertaken over the coming months will have to be subject to the RICS uncertainty clause, or something similar. In times of uncertainty and fast-changing markets we would recommend that all PCEs are updated far more frequently than would ordinarily be the case. It's important for AAs to maintain close tabs on what their liabilities may be, and those are sure to be changing regularly over the coming weeks and months.
     
  3. Effect of the scheme

    When it comes to disturbance compensation, including temporary and permanent loss of profits of a business that relocates, the three tests of reasonableness, remoteness and causation must be passed in order for compensation to be paid.

    In ordinary times it can be difficult enough to put forward evidence to pass all three of these tests but in current circumstances it will be a whole lot harder. How, for example, does a restaurant or hotel business evidence that a loss of profits is caused as a consequence of compulsory purchase (or the threat thereof if we’re talking about shadow period losses), when every single similar business out there is also haemorrhaging profits too?

    This example is just the tip of the iceberg, and more than ever it will be imperative for affected businesses to find ways of evidencing loss of business that is due to the threat or actuality of compulsory purchase, and that which is caused as a consequence of coronavirus.
     
  4. The need for expedited payments

    This is perhaps the most important point, or at least the one point that the Government could take some proactive action to address.

    On 17th March 2020, the Chancellor stood in front of the country and told us that the Government will do ‘whatever it takes’ to help businesses. Well, one thing that would instantly help any business that has had its premises compulsorily purchased would be for the Government to urge (or require) all AAs to pay 100% of their assessment of the compensation payable to a claimant ASAP, irrespective of whether the claimant has provided all of the evidence that might ordinarily be required to justify a payment to be made.

    You could argue that, at the very least, all AAs have a moral duty to foreshorten their governance and approvals processes so that payments reflecting amounts recommended by their advisors can be paid without any delay. Hiding behind a duty to protect the public purse as an excuse for failing to act quickly is not acceptable in these times…… even HMRC is agreeing over the phone for businesses to delay tax payments; if they can do that then so too should the compulsory purchase sector.

 

If you have any concerns at all or queries about either your property, if it is subject to compulsory purchase, or the properties falling within your compulsory purchase order and how they’re affected under the current circumstances, please get in touch with our experts for advice. 

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