New code of practice for Commerical Property relationships during COVID-19

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23 July, 2020

As the impact of COVID-19 continues to be felt on businesses despite the gradual easing of national lockdown restrictions, the Government has published a new Code of Practice to set out its guidance focussing on how landlords and tenants should try to work together through any difficulties. The Government's ultimate aim is to get the economy moving towards recovery as swiftly as possible, although it is recognized that tenants across many industries are continuing to face difficulties, in particular with payment of rent.

The Code of Practice is a voluntary code and it does not replace the parties contractual obligations to one another, particularly in the form of the lease. It does, however, provide suggestions as to best practice when a tenant anticipates it will be unable to make payment of rent due to the challenges raised by COVID-19. The parties should discuss the situation as early as possible so that appropriate support can be provided and, if possible, new payment arrangements can be agreed. There are a number of possible arrangements depending on the tenant's existing predicament as well as how and when the tenant considers circumstances will improve.

Aside from simply agreeing a rent holiday or deferral for a set period of time, other options that the parties may wish to consider include:

  • payment of the rent over shorter payment periods for a set time (for example, monthly rather than quarterly);
  • agreeing to a variation of the rent based on the current market rate or calculated as a turnover rent (incorporating any period during which the premises were was closed);
  • agreeing for the landlord to draw from rent deposit on the understanding that the landlord will not then require that the deposit be "topped up" by the tenant before it is realistic and reasonable to do so;
  • the landlord agreeing to waive contractual default interest on unpaid rent to make payment plans more affordable; or
  • both the landlord and tenant agreeing to split the cost of the rent for the unoccupied period between them.

From a landlord's perspective, given the current climate although most would be prepared to support a tenant as much as possible, the bargaining strength when it comes to negotiating rent payment arrangements will usually be in their favour. As a result, they could use this as an opportunity to take a more long-term view on the tenant's occupation, by agreeing any of the above payment arrangements (such as a rent concession) in return for the tenant agreeing a new lease, an extension to the existing lease, or the removal of the tenant's break right in the lease.

For more information contact Mohassan Mehmood in our SIPP & SSAS department via email or phone on 0333 207 1161. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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