Comment and insight from our property experts.
The Code of Practice for Commercial Property Relationships and Further COVID-19 Protections for Tenants (Update)
- AuthorSarah Whitehurst
Extensions to Existing Reliefs
Section 82 of the Coronavirus Act 2020 provides that a right of re-entry or forfeiture under a relevant business tenancy for non-payment of rent may not be enforced, by action or otherwise during the relevant period. The relevant period began on 26 March 2020 and was to end on 30 June 2020. Regulations will come into force on 29 June 2020 extending the moratorium on forfeiture for non-payment of rent to 30 September 2020.
In addition to the extension of the moratorium on forfeiture, there has been an extension to the period of any rent arrears before Commercial Rent Arrears Recovery can be used to 189 days of unpaid rent and this will now apply until 30 September 2020.
The Government have also announced an amendment to the Corporate Insolvency and Governance Bill which will extend the ban on using statutory demands and winding up petitions where a company cannot pay its rent and bills due to COVID-19 until 30 September 2020.
The Code of Practice for Commercial Property Relationships
The Government have also published a Code of Practice for Commercial Property Relationships during the COVID-19 Pandemic (“the Code”). The Code is intended to reinforce and promote good practice among landlord and tenant relationships as they deal with the income shock as a result of the pandemic.
The Code identifies the following principles:-
- Transparency and collaboration;
- A unified approach;
- Utilisation of Government support;
- Acting reasonably and responsibly;
- Utilising a third-party mediator to help facilitate negotiations between landlords and tenants who cannot reach agreement having followed the principles listed above.
The Code also sets out various matters which the landlord ought to have regard to when considering a tenant’s request to renegotiate their rent, such as:-
- a closure period impacting the tenant’s business;
- duration and extent of restrictive 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 is being used;
- the tenant’s previous track record under its lease terms and any concessions to the tenant that the landlord has already agreed;
- the impact that providing support may have on the tenant’s competitors and on other support already offered to the tenants;
- possible alternative considerations in a regulated sector for example, pubs that are regulated under the Pubs Code.
The Code even goes so far to suggest alternative arrangements such as:-
- 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 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 in a proportion of turnover of the site, incorporating any period during which the site was closed;
- landlord drawing from rent deposits on the understanding that the landlord will not then require the deposits to be “topped up” by the tenant before it is realistic and reasonable to do so;
- reductions in rent, either in whole or in part across other units occupied by the tenant and owned by the landlord, as part of the negotiated agreement applying to the 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 solutions on a fixed date or 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.
The overall message that the Code conveys is that the Government continues to expect commercial landlords and tenants to work together to get through these difficult times and to avoid forfeiture for non-payment of rent. Although the Code is voluntary, once the extended moratorium on forfeiture has come to an end, it is likely that the Court will have consideration to the Code when dealing with court proceedings for forfeiture due to non-payment of rent and applications for relief from forfeiture. Indeed, the Court may also have regard to the Code when dealing with money claims for non-payment of rent and/or service charges, CRAR proceedings and winding up petitions.
The full Code can be found here: https://www.gov.uk/government/publications/code-of-practice-for-the-commercial-property-sector/code-of-practice-for-commercial-property-relationships-during-the-covid-19-pandemic#principles