COVID-19: Government extends protections for business tenants

Posted Tuesday 23rd June 2020

The Government announced on Friday (19 June 2020) that it is extending the moratorium on forfeiture until 30 September 2020. It also announced that the temporary restriction on statutory demands and winding-up petitions that is currently being rushed through Parliament will remain in place until 30 September 2020. This is welcome news to tenants, particularly those in the hospitality, leisure and retails sectors, many whose premises currently remain closed as a result of COVID-19 and will no doubt continue to see a significant impact on trade even after they re-open.

As well as extending the temporary measures in place to protect tenants, the Government has also published its code of practice for the commercial property sector. The overriding aim of the code is to encourage landlords and tenants to work together to reach an agreement as to the payment of rent and other sums due under a lease in light of the impact caused by COVID-19.

The code makes clear that where tenants are in a position to pay the rent they should do so. If a tenant is unable to pay in full, they should seek to agree with their landlord to pay what they can in the interim taking into account the principles of the code. The code urges landlords to consider any reasonable proposals put forward by their tenants and it encourages parties to engage with lenders and other finance providers where possible to help reach a resolution.

The code sets out four main principles which both landlords and tenants should follow. These are:

  • Transparency and collaboration – the parties have a mutual interest in business continuity and as such they should deal with each other reasonably, swiftly, transparently and in good faith.
  • A unified approach – that the parties should help and support each other in dealing with other stakeholders (including banks, utility providers and governments).
  • Government support – that the parties should recognise and acknowledge the government COVID-19 related subsidies or reliefs which have been brought in to help companies meet their commitments.
  • Acting reasonably and responsibly – that both parties should act reasonably and responsibly in order to identify mutual solutions.

In addition to the principles, the code sets out a number of potential solutions which landlords and tenants should consider. These possible solutions include agreeing rent concessions, rent deferrals, payments over a shorter period (i.e. monthly instead of quarterly) and drawing down from the rent deposit. When negotiating the best way to proceed, landlords are encouraged to bear in mind the impact that COVID-19 has had on a tenant including whether its shops have been closed, the duration and extent of future restrictions, the tenant’s previous track record under the lease terms and the needs of other stakeholders during this period.

The code also states that service charges and insurance costs are not profit making and must therefore be paid in full. However, landlords are invited to consider whether any costs could be reduced in light of a building’s lack of use, although it is acknowledged in some cases that additional service costs may be necessary in light of COVID-19.

The code will remain in place until 24 June 2021 when it is hoped that we will have all returned to some sort of “normality”.

Whilst the message from the Government is clear that landlords and tenants are all in this together, the code is voluntary. Landlords are not therefore obligated to come to any arrangements with their tenants and the terms of a lease will remain in full force unless otherwise agreed. The extent to which the principles of the code will be adopted therefore remains to be seen.

This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.

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