It’s annual valuation time at the property fund and the asset managers are busy coordinating rental valuations of the properties for which they are responsible.
Spreadsheets are being populated with estimated rental values, budgets worked up and profit and loss figures for each asset honed. It’s all business as usual activity. Management wants to see attractive rental growth but no one wants to commit to the undeliverable.
Some months later, one of the asset managers is dealing with a rent review. It is on floor 1 of a building. The review date has passed and an application has been made to the dispute resolution service of the RICS to appoint a third party. The asset manager is amazed to be told by his rent review surveyor that the tenant’s surveyor has called for disclosure of the annual rental valuation of the premises of which rent is being reviewed and any related documents.
It so happens that there are two e-mails on the fund’s computers about the comparable space on floor 2 of the same building. One is a memo from one director of the fund to another director that says: “It is important to our strategy that we achieve a rent of £35 per sq ft, as an absolute minimum.”
The other is an e-mail from a director to the asset manager that says: “You are authorised to agree a rent free period on the deal for a new letting of up to three years provided the headline rent is £35 per sq ft. We badly need this evidence in place for other reviews.”
Why, asks the asset manager, should he have to disclose confidential, private documents like that? Does he?
Let’s go back to first principles and kick them around.
Who can order disclosure ?
Judges and arbitrators have to decide cases based on the evidence before them. Both litigation and arbitration allow for disclosure with the tribunal having power to order the specific disclosure of a particular document or class of documents.
Experts cannot order disclosure, unless the contract under which they are appointed confers that power. Leases seldom do. Of course, the expert can ask for documents and use their own knowledge and expertise in reaching a valuation, not being restricted to the evidence submitted.
What documents have to be disclosed?
There are factors which qualify and disqualify a document from disclosure. To be a candidate for disclosure, a document must be relevant to an issue in the dispute. “Relevant” connotes that the content supports or undermines the case of one side or the other on an issue in dispute. Conversely, a document that is privileged is not liable to disclosure.
Privilege
There are two principal categories of privilege:
- legal advice and documents created in order to obtain legal advice; and
- documents created for the main or dominant purpose of dealing with actual or contemplated litigation or arbitration.
The former –“legal advice privilege” – applies if lawyers are involved to give advice.
The latter – “litigation privilege” – does not depend on lawyers being involved.
Confidentiality
Confidentiality is not a disqualification from disclosure by one party to another.
Enter the Hammers
West Ham United FC got into a High Court dispute with E20 relating to the number of seats the club was entitled to use in the London Stadium (WH Holding v E20 Stadium LLP [2018] EWCA Civ 2652).
West Ham requested disclosure of six e-mails, passing between the board members of E20 and between E20 board members and stakeholders. E20 said that each of the six e-mails were composed with the dominant purpose of discussing a commercial proposal for the settlement of the dispute when litigation was in reasonable contemplation.
The Court of Appeal considered whether litigation privilege extends to documents which are concerned with the settlement or avoidance of litigation where the documents neither seek advice or information for the purpose of conducting litigation nor reveal the nature of such advice or information.
The unanimous decision was that documents produced for the dominant purpose of discussing a commercial settlement of a dispute when litigation was in contemplation were not privileged from disclosure.
Litigation privilege covers communications between parties or their solicitors and third parties to obtain information or advice provided it is for the sole or dominant purpose of “conducting the litigation”.
“Conducting the litigation” includes deciding whether to litigate and also includes whether to settle the dispute giving rise to the litigation. Documents in which such information or advice cannot be disentangled or which would otherwise reveal such information or advice are covered by the privilege.
Other internal communications falling outside litigation privilege as described above are disclosable. E20 had to disclosure the six e-mails.
The method and the fund
The method for determining discoverability is to test in sequence for relevance and each type of privilege.
Returning to our example, the rent review was reasonably contemplated or anticipated by the fund when the e-mails were written. Neither sought nor revealed advice or information for the arbitration. Neither concerned the floor, in question. Neither commented on the rent achievable on review as opposed to rents sought for new lettings of other parts of the same building. Therefore neither e-mail was relevant and disclosable.
And what about the ERV of the premises being reviewed and entered into the annual valuation? Again, this assumes an open-market letting, not a review and is therefore irrelevant to the issue for the arbitrator. The wise arbitrator would not attach weight to this figure as setting a ceiling on the fund’s rental aspirations any more than it represents the minimum that the tenant would expect to pay.
Seems simple, but for lawyers it is business as usual.
Roger Cohen is a real estate sector partner at Bryan Cave Leighton Paisner