New Covid-19 Pandemic Code of Practice for Commercial Property

On Thursday 19th of June Simon Clarke MP, Minister for Regional Growth and Local Government published a Code of Practice for Commercial Property.

The Code is a voluntary code of practice designed to facilitate the relationship between landlords and tenants who may be encountering financial difficulties caused by the COVID-19 pandemic.

It seeks to set out the Government’s view on how best to deal with any financial difficulties while adhering to a number of fundamental principles including the view that those tenants who are able to pay their rent in full, should continue to do so. Those tenants who cannot pay their rent in full should communicate with the landlord and the landlord should provide what support they can.

The Code does not change the underlying law relating to landlord and tenant relationships (or introduce any variations implemented by the Coronavirus Act 2020 moratorium on forfeiture, which the Government is now taking steps to extend to 30^th September) or the contractual rights and obligations between the parties set out in a property’s lease.  It does however require the parties to act in good faith, reasonably and flexibly and in accordance with the Code’s principles, which require transparency and collaboration, a unified approach and for the parties to strive to reach an acceptable negotiated outcome.

In seeking to settle new arrangements those tenants seeking concessions are encouraged to be clear with their landlord why they are needed and to be prepared to evidence the reason by providing suitable documentation.

Landlords should agree to the concessions where they reasonably can and if they feel unable to do so are required to set out clearly why they have reached that decision. Detailed points for the landlord to consider include the closure period impacting the tenant’s business, the nature of the restrictions caused to the tenant’s business, the additional cost of protecting customers and employees as well as a more wide ranging factors such as accounting for any government support that may have been received by the tenant, the tenant’s previous track record and what the consequences might be on the tenant’s competitors and on other support already offered to the tenant.

An impartial observer might conclude that any sensible landlord and tenant would already be thinking along the lines recommended by the Code, but perhaps more usefully the Code sets out some alternatives for rent arrangements that the parties can consider, which for the sake of clarity are reproduced in their entirety below:

a. a full or partial rent-free period for a set number of payment periods

b. a deferral of the whole or part of the rent for one or more payment periods

c. the payment of the rents over shorter payment periods for a set time (e.g. monthly rather than quarterly) including provision for their payment in arrears

d. rental variations to reduce ongoing payments to a current market rate and/or to provide for all or part of the rent to be paid as a proportion of turnover of the site, incorporating any period during which the site was closed

e. landlords drawing from rent deposits on the understanding that the landlord will not then require that the deposits be “topped up” by the tenant before it is realistic and reasonable to do so

f. reductions in rent, either in whole or part, across other units occupied by the tenant and owned by the landlord, as part of a negotiated agreement applying to a portfolio of units

g. landlords waiving contractual default interest on unpaid rents or rents paid in arrears to make payment plans more affordable

h. provisions for ending the solutions on a fixed date, or on reaching the trigger point of particular circumstances

i. tenants and landlords agreeing to split the cost of the rent for the unoccupied period between them

j. any of the above in return for other arrangements e.g. a reversionary lease on reasonable terms, the removal of a break right in favour of the tenant, or an extension of the lease

Similar considerations and suggestions are also made in relation to service charge and insurance payments required under the lease.

For detailed advice and assistance with your commercial property requirements please contact Andrew Weir, Head of Conveyancing and Property Services at Anthony Gold Solicitors.