The Code is voluntary for businesses and is relevant to all commercial leases held in any sector which have been impacted by the Coronavirus pandemic.
It encourages tenants to continue to pay their rent in full if they are in a position to do so and advises that others should pay what they can, whilst acknowledging that landlords should provide support to businesses if they too are able to do so.
The new Code is in addition to the existing package of measures which govern the commercial landlord and tenant relationship. These include suspension of forfeiture evictions until September 30th for missed rental payments, prevention of landlords using the commercial rent arrears recovery unless the tenant is 189 days in arrears of rent and the temporary ban on the use of statutory demands and winding up petitions where a company is unable to pay its rental liabilities.
The new Code understands that every landlord and tenant’s relationship is different. It stresses that in seeking an arrangement and any changes to rental payments, both landlord and tenant should act in good faith, be reasonable and flexible. Seeking concessions the tenant should be clear with the landlords about why this is needed and this may mean the need to provide financial information about their business. Landlords should provide concessions where they reasonably can taking into account their own fiduciary duties and financial commitments and once again landlords seeking to refuse concessions should be clear with the tenants about why they are doing so.
The Code sets out options for potential new arrangements between landlords and tenants and these options include :-
- Full or partial rent free periods
- A deferral of part or whole of the rent for one or more payment periods
- Landlords drawing from rent deposits on the understanding that the landlord will not then require that the deposits be topped up
- Reductions in rent either in whole or part across other units
- Landlords waiving contractual default interest
- Tenants and landlords agreeing to split the cost of the rent tor the unoccupied period.
In addition, the Code sets out proposals for service and insurance charges. The Code realises that it is important that buildings continue to be insured and safety maintained so they are ready to support the economy’s recovery after the Covid 19 crisis, as any service charge and insurance charge payable under the Lease is not profit making, and, unless otherwise agreed, needs to be paid in full, where there is no net reduction in overall service charge due to the lack of use of a property, this reduction should be passed on to the tenant as soon as possible ahead of the year end reconciliation in order to help with cash flow and business viability.
In summary, the new Code seeks to encourage flexibility from both landlords and tenants. To discuss any of the issues raised in this article, please contact Property Litigation Partner, Rob Cooke on 0114 228 3261 or email@example.com.