New Code of Practice for Commercial Property Relationships During COVID-19 Pandemic

Posted by Strettons on 26th June 2020 -

On 19th June 2020, the government introduced a new code of practice designed to provide clarity and reassurance to help support landlords and tenants affected by the crisis with the tools to come to a mutually beneficial agreement.

It is a voluntary code to reinforce and promote good practice amongst landlord and tenant relationships as they deal with income shocks caused by the pandemic. It does not change the underlying legal relationship or lease contracts between the parties.

This code applies to all commercial leases held by businesses which have been severely negatively impacted by the COVID-19 crisis. Still, it is expected that the hospitality, leisure and parts of the retail sectors will have most need of it.

Landlords and tenants are encouraged to engage with their lenders and finance providers to seek flexible support with their existing financial arrangements where this is needed.

Current government interventions, including the moratoriums on forfeiture and anti-irritancy measures, do not undermine or permanently alter the existing legislative framework governing the relationship between tenant and landlord. These interventions are intended to be exceptional, time-limited measures and the government is also currently legislating to limit use of statutory demands and winding up petitions until 30th September through the Corporate Governance and Insolvency Bill.

Several large organisations including the RICS and British Property Federation have endorsed the code, and it will apply until 24th June 2021.

The main principles promoted include:

• Transparency and collaboration

• Acting reasonably and responsibly
• Government support – where businesses (whether landlord or tenant) have received government COVID-19 related subsidies or reliefs, it is recognised that this support has been provided to help businesses meet their commitments. This will include a spectrum of costs from supplies of goods and services as well as rent and other property costs such as insurance, utilities and service.
• A unified approach
• There will be cases where landlords and tenants have followed these principles but have been unable to reach a specific agreement and where it is felt that there could still be a negotiated outcome achieved. A third party mediator could be employed to help facilitate negotiations.

In reaching new arrangements, tenants seeking concessions should be clear with their landlords about why this is needed. This means being prepared to be transparent and explaining their request by providing financial information about their business. This should be to an appropriate and relevant extent, which may differ from case to case. Landlords should provide concessions where they reasonably can, taking into account their own fiduciary duties and financial commitments, and landlords seeking to refuse concessions should be clear with their tenants about why they are doing so

In considering a tenant’s request to renegotiate their rent, landlords may wish to bear in mind the impact of the following issues on the entire business of both the tenant and the landlord. This is not an exhaustive list, but could give an indication of the extent to which the tenant’s financial position has been impacted across their entire business:

• • • 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
    • 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
    • Landlords waiving contractual default interest on unpaid rents or rents paid in arrears to make payment plans more affordable
    • Provisions for ending the solutions on a fixed date, or on reaching the trigger point of particular circumstances
    • 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)

We are currently in discussions with our landlord clients and tenants about their options and we would be happy to share our advice or answer any questions. Please contact us to be connected with the management team - [email protected]