The government has introduced a new code of practice which aims to provide clarity and reassurance to commercial landlords and tenants over outstanding payments and to encourage both parties to work together to protect viable businesses during the pandemic.
The code will apply across the whole of the UK until 24th June 2021 and covers all sectors, including offices, retail and hospitality.
These are the key takeaways:- Four Principles
The code is based on four central principles:-
Transparency and collaboration
A unified approach
Government support
Acting reasonably and responsibly
Not legally binding
Compliance with the code is entirely voluntary at this time and does not change the underlying legal relationship or lease contracts between landlord and tenant. It is simply intended to reinforce and promote good practice between both parties as they each deal with income shocks caused by the pandemic.
Tenants should pay in full if they can Tenants are still liable for all covenants and payment obligations under the lease (unless this is renegotiated by agreement with landlords) and tenants who are in a position to pay in full should do so. Those who are unable to pay in full should seek agreement with their landlord to pay what they can and, applying the four principles outlined above, landlords should support their tenants where reasonably possible.
Agreeing concessions
Tenants seeking concessions should be clear with their landlords about why this is needed and should also be prepared to make reasonable concessions of their own e.g. offering extended terms in return for rent deferment). Landlords should provide concessions where they reasonably can and landlords seeking to refuse concessions should be clear with their tenants about why they are doing so.
Practical options
The code provides a number of suggestions for ways in which landlords and tenants might be able to move forward with their negotiations and reach an agreement which is mutually acceptable to both parties. These include: 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; allowing 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; and Landlords drawing from rent deposits without requiring deposits be topped up’ by the tenant before it is realistic and reasonable to do so.
Service Charges
Service charges should be reduced where lack of use of a property during the lockdown period has lowered the costs incurred by the landlord and this reduction should be passed on to tenants as soon as possible.
Whilst landlords and tenants across the UK will no doubt welcome some guidance as to their respective rights and obligations during this unprecedented time, there is still some doubt over whether this voluntary code goes far enough to have any real impact.
There are certainly some reasons to be hopeful. The code has been widely endorsed by a number of leading organisations within the commercial property sector – including The British Chambers of Commerce, the British Property Federation and RICS – and, given the weight of its industry backing, individuals may think twice about ignoring it.
It is also possible that, for any party who is unwilling to consider any reasonable concessions, the very existence of the code may be enough to weaken their position in any future court proceedings where the conduct of the parties is a consideration, if it is shown that they did not act in accordance with the guidelines.
As with so much at the moment, only time will tell.
If you require any further advice in respect of the code or assistance in documenting any agreed variations to your lease, please contact Victoria Walton by email at vew@swinburnemaddison.co.uk or by telephone on 0191 384 2441.
