Tenants across the country will be breathing a sigh of relief as the government announces their intention to amend the Coronavirus Act 2020 to extend the time period for suspension of the forfeiture of evictions from 30 June to 30 September, meaning no business will be forced out of their premises if they a miss a payment in the next three month.
It is also expected that the Corporate Governance and Insolvency Bill will be amended to limit the use of statutory demands and winding up petitions until after 30 September.
These measures are temporary and are designed to reduce the immediate pressure as businesses across the UK work to get back on their feet. However, they do not deal with the rent arrears that are building up and frustrated landlords may seek to take forfeiture proceedings once the bar is lifted, unless a suitable arrangement is reached in the meantime. However, landlords will also need to consider at what levels future rents can been sustained, to ensure that occupation of their properties is economically viable.
Tenants must use this time wisely to negotiate with their landlord – the government has now published its code of practice (the Code) for commercial property relationships during the pandemic to support the direction of these negotiations.
The Code is intended to represent a starting point on the road to economic recovery. It remains voluntary and so does not change the legal position but both landlords and tenants will hopefully will use it as a sensible framework to negotiate affordable rental agreements.
The key message that both landlords and tenants are being asked to take away from the Code is that they must see themselves as economic partners – relying on each other to ensure that our commercial property sector can remain a foundation of the economy. Part of this includes an expectation that both parties will be transparent and collaborative and that, where tenants have received other government support and grants, they will use these to pay costs, of which rent is one. It is also clear that those tenants who have been unaffected by the pandemic should pay their rent.
The Code has offered the following as potential solutions or new arrangements that could be put in place for the future:-
- A full or partial rent-free period for a set number of payment periods
- A deferral of the whole or part of the rent for one or more payment periods
- The payment of the rents over shorter payment periods for a set time (e.g. monthly rather than quarterly) including provision for their payment in arrears
- Rental variations to reduce ongoing payments to a current market rate and/or to provide for all or part of the rent to be paid as a proportion of turnover of the site, incorporating any period during which the site was closed
- Landlords drawing from rent deposits on the understanding that they will not then require that the deposits be ‘topped up’ by the tenant before it is realistic and reasonable to do so
- Reductions in rent, either in whole or part, across other units occupied by the tenant and owned by the landlord, as part of a negotiated agreement applying to a portfolio of units
- Landlords waiving contractual default interest on unpaid rents or rents paid in arrears to make payment plans more affordable
- Provisions for ending the solutions on a fixed date, or on reaching the trigger point of particular circumstances
- Tenants and landlords agreeing to split the cost of the rent for the unoccupied period between them
- Any of the above in return for other arrangements e.g. a reversionary lease on reasonable terms, the removal of a break right in favour of the tenant, or an extension of the lease.
All of these new arrangement should, of course, be formally documented.
It is very important that parties come up with a solution that works for them and at HCR we endorse the sentiment of the Code – we see it as vital to ensure that otherwise viable businesses can continue to operate through the period of recovery. That said, it remains unclear as to how meaningful the Code will be whilst it remains voluntary, leaving smaller, private landlords (who will have their own struggles during this time) mainly concerned with what they have to do and not what they should do under a Code which seems idealistic.