Code of Practice for commercial property relationships during the Coronavirus pandemic (Code)
On 19 June 2020, the government published a new Code of Practice (Code of Practice for commercial property relationships during the COVID-19 pandemic) to assist discussions between landlords and tenants over rental payments. The Code is voluntary and does not override UK property law. It applies to the whole of the UK, and all commercial leases held by businesses that have been negatively impacted by COVID-19.
The Principles of the Code are:
- Parties should act with transparency and in a collaborative manner. They should act reasonably, swiftly and in good faith in their dealings.
- In order to achieve the Code’s objectives, the parties must take a unified approach with other stakeholders.
- Where businesses have received government support, it recognises that this has been provided to help businesses in meeting their commitments, including rent.
- The parties should act reasonably and responsibly to identify mutual solutions where most needed.
New Rental Arrangements
In seeking an arrangement and any changes to rental payments, both parties should act in good faith, reasonably and flexibly.
Tenants seeking rent concessions should provide justification to their landlords. They should be transparent by providing appropriate and relevant financial information about their business.
Landlords, where they reasonably can, should provide concessions bearing in mind their own fiduciary duties and financial commitments. Equally, landlords refusing concessions should be transparent and provide reasonable explanations for their decision.
Landlords may wish to bear in mind certain matters that have an impact on the business of the landlord and the tenant when making their decision. Examples include closures, trading via other means, restricted trading periods, extra costs associated with adhering to social distancing, other stakeholder needs, government support received, the tenant’s previous track record, the impact providing support may have on the tenant’s competitors etc.
The Code also sets out various options for new rental arrangements that could be agreed to by both parties.
Service charge arrangements
The Code states that it is important to ensure buildings continue to be insured and safely-maintained to support the economy’s recovery post-COVID-19. Therefore, service charges and insurance payments must be paid in full.
Nevertheless, the Code recognises the impact this may have on the tenants’ finances. Therefore, in return, landlords should ensure that:
- Service charges are reduced where the lack of use of property has lowered service charge costs, and where practicable and consistent with providing best value for occupiers.
- The frequency of tenant service charge payments should be spread over shorter periods where possible.
- Any reductions should be passed on to tenants ahead of end of year reconciliations to help with cash flow and business viability.
- Management fees should reflect the actual work carried out in managing services during the Covid-19 crisis.
The Code, and the signatories’ support of it, will apply until 24 June 2021.
If you would like to talk through the consequences for your business, please email us and one of our team will get in touch.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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