New Code of Practice for commercial property relationships during the COVID-19 pandemic
The government has published a new voluntary Code of Practice for commercial property relationships during the COVID-19 pandemic aimed at landlords and tenants. The Code provides guidance to enable them to reach agreement with regard to the payment of rent. The code outlines measures that both landlords and tenants should consider if other options have already been explored and exhausted.
In particular the code states that:
- Where the Tenant is unable to pay the rent in full they should seek agreement with their landlord to pay what they can
- Landlords should support their Tenant where reasonably possible (having regard to their own financial commitments and fiduciary duties)
In addition, the Code of Practice for commercial property relationships during the COVID-19 pandemic suggest landlords should consider other factors including:
- Closure period impacting the tenant’s business and ability to trade via other means
- Duration and extent of restricted trading due to social distancing requirements
- Extra costs and obligations through protecting customers to adhere to social distancing requirements
- Needs of other stakeholders such as banks, employees and suppliers, during this period
- Government support received and how this has been used
- The tenant’s previous track record under its lease terms and any concessions to the tenant already agreed
- The impact that providing support may have on the tenant’s competitors and on other support already offered to tenants
- Possible alternative considerations in a regulated sector. For example, pubs that are regulated under the Pubs Code
The Code of Practice for commercial property relationships during the COVID-19 pandemic provides the following options for discussion
- 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
When it comes to Service Charges and Buildings Insurance, these are not supposed to be profit making, the tenant should pay as and when they fall due however:
- These should be reduced accordingly where the lack of use of a property has lowered the service charge costs incurred.
- Conversely, it is acknowledged that in some cases there may be additional service costs required, e.g. in order to operate a building which complies with health and safety requirements in the context of COVID-19, or recommissioning where buildings are reopened.
- Landlords should ensure that service charge costs are reduced where practicable and consistent with providing best value for occupiers.
Rix & Kay’s dedicated Commercial property team based in Brighton & Hove; Sevenoaks; Uckfield and Ashford has specialist expertise in negotiating and formulating agreements reached relating to any concessions varying an existing Lease term. For more information contact David Ashton e. email@example.com t. 01825 745 366