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Coronavirus – The Code of Practice for Commercial Property Relationships may not achieve its purpose

On 19 June 2020 the government published the Code of Practice for Commercial Property Relationships. It’s purpose is to provide guidance for landlords and tenants to encourage a swift economic recovery.

Collyer Bristow’s Head of Real estate, Michael Grace, provides comment.

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The Government has published a new code of practice that is intended to provide guidance for landlords and tenants to encourage a swift economic recovery.

The Code of Practice for Commercial Property Relationships During the Covid-19 Pandemic will be welcomed by landlords and tenants but is not without its problems.

Key elements

The key elements of the Code are:-

  • That tenants who are able to pay their rent in full should continue to do so, whilst those businesses that cannot pay in full should communicate with their landlord to pay what they can. Landlords should provide support to businesses if they too are able to do so;
  • It sits alongside other measures, such as the moratorium on forfeiture of commercial leases and changes to Commercial Rent Arrears Recovery, statutory demands and winding-up petitions, which provide tenant businesses the breathing space to work with landlords and other partners on a plan for a sustainable future;
  • To reinforce and promote good practice amongst landlord and tenant relationships as they deal with income shocks caused by the pandemic;
  • It is voluntary and does not change the underlying legal relationship or legal contracts between the landlord and tenant and any guarantor;
  • That landlords and tenants must work together collaboratively and many will want to find temporary, and where possible, sustainable, arrangements outside of the existing letter of their leases in order to create a shared recovery plan;
  • The aim of the code is to facilitate those discussions by communicating best practice and presenting a unified approach;
  • Unless renegotiated by agreement with landlords, tenants are liable for existing covenants and payment obligations under their lease;
  • Where government support (for example the Coronavirus Job Retention Scheme, loans, grants, business rates relief or VAT deferrals) has been provided to businesses, whether landlord or tenant, the support is intended to help them meet the costs of maintaining their business and saving jobs. The Code recognises that rent is one of those costs;
  • The Code will apply until 24 June 2021.

The Code is designed to encourage landlords and tenants to work collaboratively together and with complete openness and visibility, meaning, amongst other things, the sharing of financial information. Yet, that information is likely be confidential and commercially sensitive. Landlords and tenants may naturally be reluctant to share this information, and maybe rightly so.

It is also important to remember that the Code does not change the legal position that tenants are liable for the covenants and payment obligations under a lease unless renegotiated by both parties. The Code does sit alongside other measures, such as the moratorium on forfeiture of commercial leases, however the Code and those measures do not follow the same timelines, meaning at some point the Code and those measures no longer align.

The Code has no teeth or means to sanction those that choose not to adopt it, meaning whilst tenants will welcome its introductionlandlords may simply pay it lip service.

Many landlords feel that they have had enough pain and that this Code offers no balance or real help for them, notwithstanding the measures of Covid-19 related support Government has made available.

 

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Michael Grace

Partner - Head of Real Estate

michael.grace@collyerbristow.com