Guide to Landlords and Tenants: The new Code of Practice for Commercial Property

On 19 June 2020, the Government issued a new voluntary Code of Practice for commercial property. The Code has been developed with leaders from the retail, hospitality and property sectors to provide clarity for businesses when discussing rental payments and to encourage best practice between landlords and tenants so that all parties are supported. Importantly for landlords, the Code encourages tenants to continue to pay their rent in full where they are able to do so whilst also encouraging landlords to provide support to their tenants when they able to do so. Whilst the Code is voluntary, the Government has stated that it will make it mandatory, if necessary, should landlords and tenants refuse to commit to implementing its terms.

In outline, the key features of the Code include:-

Introduction of key Principles

Transparency and collaboration - landlords and tenants have a mutual interest in business continuity in their dealings under the Code, will act reasonably, swiftly, transparently and in good faith (without prejudice to requirements of reasonableness as exists in any regulatory regime or legislation).
Unified approach – the parties will try 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 objectives of the Code and to help manage the economic and social consequences of COVID-19.
Government Support – the parties recognise that Government support has been introduced to help businesses to meet their financial commitments including rent and other property related costs such as insurance, utilities and service charges.
Acting reasonably and responsibly - there is an expectation on the parties to operate reasonably and responsibly to identify mutual solutions where they are most needed.

Rental Arrangements

Parties are expected to act in good faith, reasonably and flexibly in line with the new principles when agreeing any arrangements for rental payments during the pandemic.
When seeking any rent concessions, tenants should be transparent, and explain their request by providing financial information about their business.
Landlords should provide concessions where they reasonably can, taking into account their own fiduciary duties and financial commitments, and when refusing concession should set out clear reasons for doing so having taken into account information provided by the tenant. The parties should consider how to protect commercially sensitive information as part of the disclosure process.
The Code includes a non-exhaustive list of issues to be considered when agreeing rental arrangements including matters such as closure period, ability to trade via other means, duration and extent of any restricted trading duties, social distancing, extra costs and obligations for protecting customers to adhere to social requirements, Government support received and how that has been used.
The Code gives examples of new rental arrangements such as full or partial rent free period, deferral with the whole of part of the rent for one or more payment periods, payment of rent over shorter payment periods (e.g. monthly rather than quarterly) and provision for payment in arrears.

Service Charge and Insurance

The Code expressly states the importance that buildings must be insured and safely maintained and unless otherwise agreed, service charge and insurance charges must be paid in full.
Landlords should ensure that service charge costs are reduced where practicable and consistent with providing best value for occupiers. Where possible, the frequency of the tenant’s service charge should be spread over shorter periods with any reduction in overall service charge due to lack of use of a property passed on to tenants to help with cash flow and business viability.

A link to the new Code can be found here.

Extension of Existing Restrictions

The Code sits alongside other Government measures introduced to help businesses such as the moratorium on forfeiture of commercial leases, changes to CRAR, service of statutory demands and winding up petitions. Following our article on landlords’ remedies during the pandemic (click here to read), the Government has announced the following changes:-

The Coronavirus Act 2020 will be amended to extend the moratorium on forfeiture for non-payment of rent until 30 September 2020.
The tenant must now owe at least 189 days arrears before the remedy can be exercised to include service of notice on a sub-tenant for payment of sub-rents to the landlord. This restriction will remain in force until 30 September 2020.
The moratorium against service of statutory demands/issue of winding up proceedings has been extended to 30 September 2020.

Please contact Meera Patel for further information.

The contents of this email are intended for general information only and do not constitute legal advice. Wallace LLP cannot accept responsibility for any loss arising from the use of the content in this email. This information was prepared on 23 June 2020.