On 19 June 2020 The Government published a new Code of Practice for Commercial Property Relations (the Code) as a result of the Coronavirus lockdown.
Its aim is to reinforce and promote good practice among landlords and tenants as well as deal with the issues of rent payment brought on by Covid-19. It sits alongside other measures, such as the moratorium on forfeiture of commercial leases, which has been extended to 30 September 2020.
Taking effect with the June quarter, the Code will apply until 24 June 2021.
The Code is voluntary and it does not alter the underlying legal relationship between landlords and tenants and is based on the following principles:
- Transparency and collaboration – parties are to act reasonably, swiftly and in good faith in their dealings.
- A unified approach – parties to support each other with other stakeholders to achieve the Code’s objectives.
- Acting reasonably and responsibly – the parties are to act reasonably and responsibly to identify mutual solutions where they are most needed. Tenants must be prepared to give reasons as to why concessions are necessary and that they may be required to supply reasonable financial information to landlords so their request for concessions can be properly assessed.
- Government support – where businesses have received government support, it is recognised that such assistance has been supplied to help businesses meet their financial commitments, including payment of rent.
While highlighting the retail, leisure and hospitality sectors, the Code applies to all commercial leases that have been impacted by the lockdown.
The Code lists a number of practical arrangements that could be agreed by landlords and tenants including:
- Rent free periods.
- Changing rent payment frequency from quarterly to monthly.
- Rent reductions or moving to a turnover rent mechanism.
- Landlords withdrawing monies held as rent deposit but the tenant not being required to top up before it is reasonable to do so.
- Sharing the cost between landlord and tenant for unoccupied periods.
The Code also gives guidance to landlords as to points they may wish to consider when agreeing concessions including:
- Government support received by the tenant and how it has been utilised.
- The tenant’s track record of compliance of lease terms and concessions previously provided.
- The costs associated with adhering to social distancing requirements.
- Restrictions on trading periods or trading via other means.
- Other stakeholders needs.
Service Charge and Insurance
The Code acknowledges that it is important to ensure buildings continue to be insured and maintained and as such service charges and insurance rent must still be paid in full.
- Look at reducing service charges if lack of occupation of the buildings has resulted in lower costs being incurred and such reductions are passed to tenants prior to reconciliation.
- Consider spreading the frequency of payments over shorter periods.
- Reduce costs by delivering services as efficiently as possible.
However, both parties should be mindful that service charges may have to increase as a result of works required to ensure properties that have been vacant for a period of time are recommissioned and made Covid secure.
The Code is not legally binding and we have seen many landlords and tenants already taking steps to discuss and agree concessions. The Code however does provide parties with a useful framework to assist in negotiations.
If the parties do agree to concessions or variations to leases then these changes should be formally documented.
If you have any questions about the code or would like legal advice on any other commercial property matters, please contact Emma Elkington, who is a solicitor working in our Commercial Property team, by calling 01256 854610 or by emailing [email protected]
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This article is current at the date of publication set out above and is for reference purposes only. It does not constitute legal advice and should not be relied on as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.