Code of Practice For Commercial Property Relationships During the Pandemic

The Government issued at the end of last week their promised Code of Practice For Commercial Property Relationships during the pandemic. We attach therefore a copy of the Code and have set out a brief summary of it’s provisions below in case it’s of interest.

In summary, it is very much what the industry expected it to be and it doesn’t contain any “game changers” for most responsible landlords or tenants. Landlords will however undoubtedly have tenants or their representatives quote it in negotiations over rent concessions and it’s reasonable to assume that the Courts may look at the parties’ conduct in light of the Code as a factor in deciding whether or not to award costs if matters become litigious.

The Government has also indicated that the bar on forfeiture for non-payment of rent and the prohibition on applying from winding up petitions without obtaining leave of the  Court will be extended from June 30 to September 30. Again this is what most of the industry expected but the Code implies that these restrictions are time limited, emergency measures which won’t be introduced permanently. They have however proposed a change regarding the landlord’s ability to seize goods for unpaid rent under the CRAR regime, indicating that they intend to bring in secondary legislation to provide that that remedy will only be available where rent is overdue for 180 days, rather than the current 90 day period. (The Government statement actually says it has to be unpaid for 189 days but it’s unclear whether this is merely a typing error. We’ll obviously know more in this respect once the secondary legislation is published).

In terms of the Code: –

1. It is voluntary and has no legal effect.  As mentioned above however many tenants will undoubtedly quote it in negotiations with landlords and many landlords will want to have regard to its principles. It may well also be that Courts look at the parties’ conduct in light of the Code as one factor in deciding whether or not to award costs if matters proceed to Court;
2.  It expressly recognises that:
   1.  tenants who can pay in full, should and where tenants can only afford to pay part of what they owe, they should communicate with the landlord and pay what they can; and
   2. where tenants are taking advantage of the various Government relief schemes that are available, they are intended to enable those businesses to meet their costs. Rent and other property costs are now expressly recognised as being part of those business costs;
3. UK Finance have incorporated into the Code a  link to their website which summarises their position. It reinforces their previous   statements that their members are committed to engaging with a major landlord borrowers and will lend a sympathetic ear to requests for  assistance such as repayment holidays, covenant waivers and the like. Unlike in the residential market however, there has been little formal Government intervention.
4. The Code sets out in paragraphs 14 to 18 four principles that reasonable landlords and tenants should adopt when negotiating with each other:
   1. Transparency and Collaboration: both parties should act reasonably, swiftly, transparently and in good faith.  It espouses the principle that landlords and tenants are economic partners rather than opponents. The Code states that where tenants are seeking help, they should be transparent and provide reasonable financial information about their businesses to landlords. Landlords should try and make concessions where they can reasonably and where they have to refuse, should give reasons for that refusal;
   2. Unified Approach: all parties should seek to help each other wherever they are in the commercial property chain;
   3. Government Support: as mentioned above, where tenants  have received Government support from the various relief schemes available, it’s intended to help their businesses meet their commitments, including expressly their property costs; and
   4. Act Reasonably and Responsibly: both parties should recognise the pandemic’s impact and identify mutual solutions where they’re most needed.

The Code also distinguishes between rent and service charge and insurance costs and suggests that tenants should pay service charge and insurance in full to ensure that buildings are properly maintained, secured and insured. It also request landlords do their best to minimise service charges where possible and try to spread the frequency of service charge payments. (Interestingly some landlords are already demanding this monthly, rather than quarterly). It  also recommends that management fees charged via service charge should reflect the actual cost of the work conducted, rather than, as is sometimes the case, being calculated as a set percentage of the overall cost incurred.  We suspect therefore that when tenants employ service charge consultants to review their liabilities, they will refer to these principles, as well as the recently updated  RICS guidelines, in any comments they make.

All in all, no real surprises but it definitely reinforces the Government’s previous direction of travel.