Code of practice for commercial property relationships during the pandemic
IN mid-June the government published its Code of Practice for commercial property relationships during the Covid-19 pandemic. Its aim is to support businesses to work together to negotiate affordable rental agreements, and to sit alongside other measures, such as the moratorium on forfeiture of commercial leases.
The Code is a best-practice document and is voluntary, which means it does not cut across legally binding lease terms. It applies to commercial leases across all sectors, although it is expected the hospitality, leisure and parts of the retail industry will need it the most. Its endorsement by bodies such as Rics is said to apply until June 2021.
The Code reiterates government guidance regarding tenants which states, those who can afford to pay their rent should do so, whilst those who cannot pay in full should speak to their landlords and pay what they can. Landlords are expected to provide support to tenants where they are able.
There are specifications regarding tenants. That they should be transparent with landlords about why concessions are needed, and they should be prepared to provide reasonable financial information about their business to support such requests.
Landlords should provide concessions where they reasonably can, considering their own duties and commitments. If a landlord is unable to accommodate a concession, a reasonable explanation should be given as to why.
Further, the Code lists a number of considerations a landlord may wish to bear in mind in considering a tenant’s request to renegotiate their rent and usefully sets out a list of practical arrangements that could be agreed between landlords and tenants to mitigate the impact of the crisis.
Such arrangements include rent-free periods and deferral of rent payments; moving from quarterly to monthly rent payments and/or payment in arrears; rent reductions and/or payment of rent on a turnover basis and waiving interest on unpaid rents or rents paid in arrears.
Such arrangements could be offered in return for something else of commercial value, including a reversionary lease, the removal of a tenant-only break right or an extension of the lease.
Additional guidance is also given in relation to service charges and insurance costs. It is crucial for both landlords and tenants that service charge and insurance rents are paid on time, as this enables the continued maintenance and insurance of buildings and estates.
However, landlords can take steps to mitigate the impact of this for tenants by seeking to reduce costs and consider spreading the frequency of payments over shorter periods.
The Code is not legally binding and, in our experience, well-advised landlords and tenants have already been having the discussions suggested by this guidance for some time.
However, it may be a useful tool for less established landlords and tenants who may not be aware of all of their options.
Conor Kerr (firstname.lastname@example.org) is as associate at DWF Belfast, advising both landlords and tenants on the commercial and legal aspects of navigating the current crisis.