197: New Code of Practice for commercial landlords and tenants during COVID-19 pandemic
On 17 June 2020, the government published a new, voluntary Code of Practice for commercial property rental payments during the COVID-19 pandemic. The Code sets out a number of principles which commercial landlords and tenants are encouraged to apply when negotiating arrangements during this difficult time.
Pay up where you can
The Code was released just before the June quarter day in the hope that parties would act in good faith when it comes to rent payments. The introduction to the Code states that tenants ‘who are able to pay their rent in full should continue to do so’ and therefore not use COVID-19 as an excuse to avoid paying rent.
At the same time, the government has extended (until 30 September 2020) the ban on both the forfeiture of commercial leases and the presenting of winding up petitions. In addition, commercial rent arrears recovery (CRAR) can now only be used where tenants owe at least 189 days of unpaid principal rent.
Clearly, the government does not want tenants to abuse the protections that have been put in place during the pandemic where they are actually able to pay their rent to landlords. The Code encourages transparency and co-operation, but landlords are not being asked to agree concessions with tenants who are able to meet their quarterly rent payments.
Temporary severe hardship
However, if a tenant can demonstrate it is experiencing ‘temporary severe hardship’ as a result of the COVID-19 pandemic, it is suggested that landlords ‘should provide concessions where they reasonably can’. Tenants must provide financial information to explain why they cannot pay. Landlords must take these into account and agree concessions, where possible, or provide a reasonable explanation for refusal.
The March quarter day fell just after lockdown. Many landlords and tenants entered into emergency discussions straight away and concession arrangements were quickly documented in side letters. It has been common practice for landlords to allow ‘rent-free periods’, a ‘deferral of the whole or part of the rent’ or ‘rental variations to reduce ongoing payments to a current market rate’. These are referred to in the Code as the best course of action to be negotiated.
That said, some of these arrangements may only have been agreed to last until the end of June and there will be tenants struggling to make their next quarterly or even monthly payments.
Service charge and insurance
In addition, the Code states that service charge and insurance rent needs to be paid in full without discount. It stresses that it is important that buildings continue to be insured and safely-maintained so that they are ready to support the economy’s recovery after the pandemic.
Voluntary until June 2021
It will be interesting to see what impact this new Code will actually have, or if it has come a little too late for some tenants. It is only voluntary and lasts until 24 June 2021, but it does have heavy backing from industry bodies including the British Chamber of Commerce, BPF, BRC and RICS.
The Code can be found here.