Voluntary code of practice published to assist discussions between business tenants and landlords over rental payments

A new voluntary code, the Code of Practice for commercial property relationships during the COVID-19 pandemic, has been published by the Regional Growth and Local Government department.

It has been produced in response to the impact of coronavirus on landlords and tenants in the commercial property sector, and covers the whole of the United Kingdom. The code, which will apply until 24 June 2021, and has been developed in collaboration with the retail, hospitality and property sectors to provide clarity for businesses when discussing rental payments and to encourage best practice so all parties are supported.

It aims to support businesses to come together to negotiate affordable rent agreements. It is intended to reinforce and promote good practice regarding landlord and tenant relationships as they deal with the income shocks caused by the pandemic. The code does not change the underlying legal relationships. or lease contracts between landlord and tenant and any guarantor.

The government hopes it will help provide options for tenants and landlords to discuss the ability to pay rent and the possibility of reaching a new temporary agreement. It is thought that it will in particular help smaller businesses which lack access to significant legal or other resources. Tenants who are experiencing temporary severe hardship as a result of the pandemic should feel able to approach their landlords to discuss a request for support.

Landlords should be willing to consider a reasonable case put forward by a tenant who is in such distress, and whether the offer of a temporary arrangement might enable the tenant to survive.

The code also presents options for how to agree new payment arrangements. Some landlords and tenants will have already come to new arrangements in response to Covid-19, and the code is not intended to change that. It also looks at service charge arrangements, so where there is a known net reduction in overall service charges due to lack of use of a property, the reduction should be passed on to tenants as soon as possible.

The principles of this code and which should be followed are:

  1. Transparency and collaboration – Landlords and tenants have a mutual interest in business continuity which reaches beyond the extent of the current pandemic. They are economic partners and should not treat each other as opponents. When dealing with each other they should be acting reasonably, swiftly, transparently and in good faith.
  2. A unified approach – Landlords and tenants should endeavour to help and support each other in all of their dealings with other stakeholders, including governments, utility companies, banks, financial institutions and others, to achieve the outcomes by reflecting the code’s objectives, and to help manage the economic and social consequences of Covid-19.
  3. Government support – Where businesses have received support from the government during Covid-19 by way of the job retention scheme, loans, grants, business rates relief or VAT deferral, the government recognises that this support will businesses meet their commitments. This will include costs from supplies of goods and services, as well as rent and other property costs such as insurance, utilities and service charges.
  4. Acting reasonably and responsibly – To operate reasonably and responsibly, recognising the impact of Covid-19, to identify mutual solutions where they are most needed.

The government is aware that there are cases where landlords and tenants have followed these principles but have not been able to reach an agreement. If both parties feel that a negotiated outcome could still be achieved, and a third-party mediator could be employed by mutual agreement to help facilitate negotiations (if the cost of this is proportionate and with the understanding both sides would bear their own costs), then they should consider this route.

In seeking a new arrangement and any changes to rental payments, both parties should act in good faith, reasonably and flexibly, as set out in the principles. Tenants seeking assistance need to be clear with their landlord as to why it is needed, by being transparent and explaining their request with financial information about their business. Landlords should provide allowances where they reasonably can, taking into account their own financial commitments. If a landlord refuses, then they must be clear with the tenant as to why they have made that decision, which must be reasonable. Both parties will want to consider how to protect commercially-sensitive information as part of this process.

Agreeing and adhering to a new arrangement should protect against forfeiture for non-payment of rent under the previous lease terms once the Coronavirus Act 2020 moratorium on forfeiture is lifted, which currently is set for 30 September 2020, and for so long as the rent payment plan applies. It should also apply to leases not covered by the moratorium.

In essence, the government is advocating that landlords and tenants work together to help each other to ensure their businesses have a future.

How we can help

Here at Bromleys, the Corporate & Commercial Services team is keeping up-to-date with the new changes as a result of Covid-19. If you have any queries or concerns regarding this please do not hesitate to contact a member of the team by calling  0161 330 6821  or by emailing:

Paul Westwell – pwestwell@bromleys.co.uk

Martin Blaylock – mblaylock@bromleys.co.uk

Amie Carey – acarey@bromleys.co.uk