On 19 June 2020 and just in time for the following quarter day on 24 June, the government has published a new Code of Practice to help commercial landlords and tenants who have been negatively affected by Covid-19.
The Code was developed following a period of consultation with the steering group that included British Chambers of Commerce, British Property Federation, British Retail Consortium, Commercial Real Estate Finance Council, Revo, Royal Institution of Chartered Surveyors and UKHospitality.
Whilst the Code is entirely voluntary and does not change the legal position between the parties, it is hoped that it will provide a negotiating framework and promote good practice among landlords and tenants in these difficult and uncertain times.
The Code is intended to be temporary and will apply until 24 June 2021.
The Code sets out the following four key principles:
- Transparency and collaboration – landlords and tenants should act reasonably, swiftly, transparently and in good faith in all dealings with each other.
- A unified approach – landlords and tenants should help and support each other in dealings with other stakeholders, including governments, utility companies and financial institutions.
- Government support – landlords and tenants should recognise that any Covid-19 related government support has been provided to help businesses meet their commitments, including rent, insurance, utilities and service charges.
- Acting reasonably and responsibly – landlords and tenants should act reasonably and responsibly to identify mutual solutions to problems.
Further to the four principles, the Code provides guidance on how any new arrangement between landlord and tenant should be achieved:
- Tenants who are in a position to meet their obligations in full should continue to do so.
- Tenants who are not so fortunate should seek to agree concessions with their landlord allowing them to pay what they can afford, and in doing so they should act in accordance with the above principles.
- Tenants seeking concessions should be prepared to demonstrate transparency and provide financial information about their business.
- Landlords should provide concessions where they reasonably can without compromising their own financial obligations and fiduciary duties.
- Landlords refusing to provide concessions should provide reasons for doing so.
- Any new arrangement agreed between the parties should include protection against forfeiture for non-payment of rent under the previous lease terms after the Coronavirus Act 2020 moratorium on forfeiture is lifted and for so long as the agreed rent payment plan applies.
Service and insurance charges
In a separate section, the Code sets out guidance on how landlords and tenants should address issues related to service charges:
- Tenants should continue to pay service charges in full, unless agreed otherwise.
- Service charges should be reduced to reflect the reduction in service costs where the property has been left unused and any such reduction should be passed on to tenants.
- Where additional service costs have been incurred due to compliance with Covid-19 health and safety requirements, landlords should ensure that service charge costs are kept as low as possible.
- Service charge payments should be spread over shorter periods.
- All management fees should reflect the actual work carried out in managing the services and the service charge during the Covid-19 crisis.
Full text of the Code is available on the gov.uk website following the link below.
This code of practice represents a good starting point on our road to economic recovery.