New government code proposed for commercial landlords and tenants

10th June 2020

Work on the development of a code of practice for dealing with commercial rent arrears as the retail sector starts to come out of lockdown has some major problems to tackle – tenants will be unable to pay off arrears until trading is well underway but landlords’ income has suffered too over the last three months.

The code is due to be published before the next quarterly rent payment date of 24 June, and its aim is to help tenants and landlords to work together to ensure that, in the words of Communities Secretary Rt Hon Robert Kenrick MP, “our high streets and town centres are in the best possible position to come back.”

The working group is focusing on encouraging fair and transparent discussions between landlords and tenants over rental payments during the Covid-19 pandemic, providing guidance on rent arrear payments and the treatment both of those that are sub-letting and of suppliers.

The Chancellor of the Exchequer, Rishi Sunak MP stated that the government will “continue to work with lenders to ensure flexible support is provided to commercial landlords, including payment holidays and restructuring facilities” and that, where landlords receive support, they should extend this to their tenants.

The issues at stake are considerable and there are many questions which landlords and tenants want answered – what is going to happen to those rent arrears? Will they be written off in part or in full, or will they have to be paid back and if so, over what period? If they are to be written off, what support will the landlord receive?

On the other hand, a landlord will be looking to recover unpaid rents as quickly as possible, to enable their own businesses to recover – if a landlord has loans secured on the building or if their portfolio has been severely affected by the non-payment of rent, they will be less amenable.

Since tenants are looking for a rent concession, and landlords want to know that they will recover their losses, a reversionary lease could be negotiated – this extends the lease term, from the end of the original term, to an agreed date, in return for a rent concession.

Ultimately, new legislation may be needed, even though the code is designed to be temporary.