Code of practice issued and extension to measures protecting tenants

Ahead of the June quarter day, the Government has launched a new ‘Code of Practice for commercial property relationships during the COVID-19 pandemic’ (the Code) and extended a number of the measures already in place to protect tenants.

The Code

The Code is voluntary and does not affect the contractual relationship between landlord and tenant. However, it strongly encourages parties to work together collaboratively and create a ‘shared recovery plan’. It applies to all commercial leases held by businesses which have been seriously negatively impacted by the COVID-19 crisis. The Code notes that parties may wish to seek legal advice when agreeing payment arrangements.

Transparency, collaboration, reasonableness, responsibility and co-operation are all laudable measures at the heart of the Code. Mediation is suggested where parties have been unable to agree but it is felt a that a negotiated outcome could still be achieved.

The Code provides a number of practical suggestions as to the options available to parties and offers a useful framework for engagement. The options put forward in the Code are set out below, although it is made clear these are not exhaustive:

• a full or partial rent-free period for a set number of payment periods

• a deferral of the whole or part of the rent for one or more payment periods

• 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

• rental variations to reduce ongoing payments to a current market rate and/or to provide for all or part of the rent to be paid as a proportion of turnover of the site, incorporating any period during which the site was closed

• landlords drawing from rent deposits on the understanding that the landlord will not then require that the deposits be “topped up” by the tenant before it is realistic and reasonable to do so

• 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

• tenants and landlords agreeing to split the cost of the rent for the unoccupied period between them

• 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

The Code notes that service charge and insurance rent should be paid in full but sets out some considerations for landlords when raising these charges.

Parties are also encouraged to engage with their lenders.

In the ministerial foreword to the Code it is noted that ‘the transition back to normality will take time and government will continue to monitor the economy to determine whether further intervention is necessary’.

A number of industry bodies and organisations have endorsed the Code and it will apply until 24 June 2021.

Other measures

In addition the Government has announced:

• An extension to the moratorium on forfeiture of commercial leases for non payment of rent. The moratorium was due to expire on 30 June 2020 but this will now be extended to 30 September 2020.
• It will prevent landlords using Commercial Rent Arrears Recovery unless they are owed 189 days of unpaid rent. The time period for which this measure is in force will be extended to 30 September 2020.
• An amendment to the Corporate Insolvency and Governance Bill has been tabled which will extend the temporary ban on the use of statutory demands and winding-up petitions where a company cannot pay its bills due to coronavirus until 30 September.

> The full Government press release is here