Are the gloves about to come off?

14th September 2020

** Update: 25 September 2020 – Westminster have also announced an extension of the moratorium from 30 September 2020 to 31 December 2020, protecting businesses as ‘commercial tenants’ from eviction for non-payment of rent in England.

** Update: 22 September 2020 – Welsh Government have announced an extension of the moratorium from 30 September 2020 to 31 December 2020, protecting businesses as ‘commercial tenants’ from eviction for non-payment of rent.

Any relationship has its moments.

For landlords and tenants of commercial leases, the Covid-19 pandemic has put that particular contractual relationship under immense strain.

A key date is looming as 30 September 2020 sees the expiry of certain measures under the Coronavirus Act 2020 which will allow landlords to take enforcement action against tenants of commercial premises who have not paid their rent.

So will the gloves come off?

We hope not and that hope is founded on the “Code of Practice for Commercial Property Relationships during the Covid-19 Pandemic” (the Code).

What does the Code say?

Published on 20 June, the Code attempts to strike a balance of power between landlord and tenant with an overall objective “to help commercial landlords and tenants map out plans for economic recovery during the coronavirus pandemic.”

The underlying intention was to ensure “every part of the chain is supported”, promoting key principles of “transparency and collaboration” and making sure parties were “acting reasonably and responsibly.”

Landlords are actively encouraged to provide support to tenant businesses if they are able to do so. Various solutions are suggested for landlords to consider such as

  • agreements to split rent for an unoccupied period
  • payment plans over specified periods
  • rent reductions in return for lease extensions.

In return, tenants are encouraged to be transparent about the financial impact Covid-19 has had on their businesses and share evidence with their landlord.

Those landlords who take the time to understand their tenants’ business and support their short-term hardships are more likely to benefit from a long-lasting relationship and security for their long term investment.

The Code acknowledges there will be additional service costs in connection with operating a building that complies with new Covid-19 health and safety requirements and suggests that the frequency of service charge demands should be made over shorter periods to help tenants manage outgoings.

How does it relate to the Coronavirus Act 2020?

The Code followed a more stringent approach imposed by legislation in the Coronavirus Act 2020 (CA) which came into force on 26 March 2020.

The CA was designed to provide relief to tenants stymied by the socio-economic impact of Covid-19 and was due to expire by 30 June 2020.

The CA has been subsequently updated by regulations and the expiry date has been extended to 30 September 2020, giving more breathing space and to allow the Code to bed in.

Until that date, a landlord is prevented from forfeiting a commercial lease for non-payment of rent. Likewise, failure by a tenant to pay rent under the relevant period has been removed as a ground of objection by a landlord to a new tenancy under the Landlord and Tenant Act 1954.

The CA also restricts the use of Commercial Rent Arrears Recovery until 30 September 2020, unless an amount of at least 189 days’ rent is due and unpaid (previously this had been 90 days of unpaid rent).

At HCR, we have witnessed an encouraging number of open and transparent conversations between landlords and tenants. The Code, which in many ways seeks to capture what is already best practice in asset management, should assist further in building on those discussions.

Finding long-term solutions acceptable to both landlords and tenants, and managing the balance of what can be a fractious relationship even during the best of times, is something we as professional advisors encourage our clients to do. The spirit of the Code, if adopted and implemented properly, should play a fundamental role in helping the commercial property market rebound. Communication is key and if landlords and tenants have not started talking – they should now.

Looking further ahead, the spirit of collaboration embodied in the Code is something that we would like to see continue long after the pandemic has gone. There should be no reason why the Code’s principles should not be embedded in future landlord and tenant dealings.

For more information and for advice, contact Justin Mason at [email protected] or on 07725 242 823.

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