New Code of Practice for commercial property relationships during the COVID-19 pandemic

Over the last 3 months we at Parfitt Cresswell have been advising landlords and tenants on the different ways in which they can help each other deal with the shocks caused by the pandemic. Our advice has been that, to help tenant’s businesses survive, landlords and tenants should work collaboratively to try and agree concessionary, temporary arrangements wherever possible which will be mutually beneficial.

The new “Code of Practice for commercial property relationships during the COVID-19 pandemic” (“the Code”) introduced by the Ministry of Housing, Communities and Local Government this month will build upon and support the ongoing negotiations that have been taking place over the last few months by providing a framework to these conversations. It will no doubt be welcomed by tenants, landlords and their lenders as the effects of the economic disruption caused by the coronavirus continues to be felt, particularly in the leisure, hospitality and retail sectors.

The aim of the Code is simple, it is to promote good practice between landlords and tenants and will ultimately assist with the recovery of the economy. Like other ‘best practice’ codes, compliance with the Code is not mandatory and depends on parties working together - “in good faith, reasonably and flexibly” in line with the following principles:

  • Transparency and Collaboration: in all dealings with each other, in relation to the code and the COVID-19 crisis, parties will act reasonably, swiftly, transparently and in good faith. Tenants who can afford their rent should continue to pay it but if they can’t they need to be prepared to explain why they can’t and back this up with supporting evidence. Landlords should agree concessions where possible and should give reasons when they cannot.
  • A Unified Approach: parties will endeavour to help and support each other in all their dealings with other stakeholders, including governments, utility companies, banks, financial institutions and others, to achieve outcomes reflecting the code’s objectives and to help manage the economic and social consequences of COVID-19.
  • Government Support: Where businesses (whether landlord or tenant) have received government COVID-19 related subsidies or reliefs (for example the Job Retention Scheme, loans, grants, business rates relief or VAT deferral), it should be recognised that this support has been provided to help businesses meet their commitments and will include a spectrum of costs.
  • Acting Reasonably and Responsibly: parties will operate reasonably and responsibly, recognising the impact of COVID-19, in order to identify mutual solutions where they are most needed.

When trying to come to a new arrangement there are many options to consider and the Code offers some suggestions such as:

  • a full or partial rent-free period for a fixed time;
  • a deferral of the whole or part of the rent for one or more payment periods;
  • a change to rent payment schedules from quarterly to monthly, paying rent in arrears rather than in advance;
  • a switch to turnover rent incorporating any period of closure or payments at the current market rate;
  • landlords drawing from rent deposits without enforcing the tenant’s obligation to top the deposit up to the minimum amount specified in the rent deposit deed;
  • rent reductions; and
  • landlord’s waiving their right to charge interest at the default rate on unpaid rents.

This list is not exhaustive, and every landlord and tenant relationship will be different and have different needs and objectives. We are able to help you negotiate an agreement that will work for you in your current circumstances.

The Code recognises that it doesn’t all have to be one sided and, in return for any of these concessions, a landlord can ask for something in return, for example, removal of a tenant’s break clause, a lease extension or adding a further rent review later in the term of the lease.

Any agreement that is reached should be properly documented and any variation to the rent payment should protect against forfeiture after the moratorium on forfeiture under the Coronavirus Act 2020 is lifted. We therefore recommend that both landlords and tenants act now, if they haven’t already done so, to try to reach an agreement acceptable to both parties and work together to facilitate the swift recovery of our economy.

If you would like to speak to one of our expert commercial property team call us today on 0800 999 4437 or email quoting reference CPROP260620 to reserve your spot today.

We look forward assisting you with your legal needs.