8 July 2020

Coronavirus: Commercial Landlord & Tenant Code of Practice

In a previous blog article (here) we considered the various measures which the Government has implemented at the outset of the Coronavirus crisis with a view to mitigating its impact on the commercial property sector. Here we look at the next stage as we start to emerge from lockdown and focus on rebuilding the economy.

Perhaps one of the most important measures introduced in respect of the commercial landlord and tenant relationship was a moratorium on forfeiture, whereby landlords cannot forfeit a lease for non-payment of rent until 189 days of unpaid rent are accrued.  This mechanism aims to allow landlord and tenant relationships to continue without adding additional strains caused by income shocks to commercial tenants.  

This moratorium on forfeiture and enforcement of rent payment covenants by the use of statutory demands and winding up petitions was extended until 30 September and landlords will have to wait until then before commencing proceedings.

The Government has now published a voluntary Code of Practice for Landlords and Tenants to follow in seeking to avoid forfeiture or the breakdown of the Landlord and Tenant relationship.  A link to the Code is here.

The Ministerial foreword to the document sets out the Government's aim to "provide the right support to those in the chain of commercial property payments, from customers, to tenant businesses, to commercial landlords and lenders , so that our economy can recover swiftly".

Whilst voluntary, the Code will be an extremely useful tool in negotiating arrangements between the parties outside of the terms of the Lease so that a viable and mutually beneficial recovery plan may be agreed between Landlord and Tenant.  

There are a number of suggestions or considerations which the Code seeks to suggest and the list below is not exhaustive:

• tenants should submit clear concession requests and support such requests with financial information about their business. In turn, landlords should provide concessions where reasonably possible whilst being mindful of their own financial commitments and fiduciary duties;
• any rejection of a concession request by the landlord should be supported with clear and relevant reasons;
• when considering a request for a concession landlords should take into account and assess the impact on their tenants’ business of such matters as lockdown closure periods, restrictions on normal trading due to social distancing, and any Government support already available to the tenant;

The Code also suggests some of the options which may be considered by the parties such as:

• a full or partial rent-free period for a set number of payment periods;
• deferral of part or all of the rent for a certain period;
• 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;
• landlord drawdowns from rent deposits without a requirement for the tenant to “top up” the deposit account before it is realistic and reasonable to do so.

It is noteworthy that the Code confirms that tenants should continue to honour payment obligations and any covenants in full where possible. The fundamental landlord-tenant relationship continues to be governed by law and the lease language and both parties remain liable for their respective covenants contained in the lease, save where varied by statute (e.g. the forfeiture provisions).

Parties should seek legal advice in the event that a temporary arrangement is being negotiated.  Any agreement ought to be properly and legally documented in order to avoid future disagreements as to what precisely has been agreed and also to ensure that existing terms (such as timings and procedure for the service of break notices) are not impacted.