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Covid-19 - Code of Conduct between Landlords and Commercial Tenants

On 1 October 2020, The Department of Enterprise, Trade and Innovation published the Code of Conduct between Landlords and Tenants for Commercial Rents. The Code provides guidance for commercial Landlords and Tenants whose lease arrangements have been negatively impacted by Covid-19 and will remain in effect until 31 July 2021.

Overarching Principles

The Code provides an array of principles for parties who are considering re-negotiating the terms and conditions under their lease as a result of the financial hit from Covid-19. The Code advises that the Landlord and Tenant should:

• Act reasonably, swiftly, transparently, flexibly and in good faith when assessing how Covid-19 has impacted their circumstances. Sufficient information should be provided by both parties as to their current situation, which should enable both parties to identify and find a mutually beneficial solution; and
• Assist each other in their dealings with other parties, such as the Government, lenders and utility companies; and
• Acknowledge where assistance has been provided through various government Covid-19 related subsidies or reliefs to meet business requirements; and
• Consider exercising alternative dispute resolution arrangements where the Code's principles have been followed, without a solution being reached, but both parties still feel an arrangement can be negotiated.

The Code notes that Tenants who can pay in full under the lease should continue to do so. Similarly, Landlords should make themselves approachable to Tenants to discuss any requests for assistance where the Tenant is experiencing temporary and significant financial hardship. Tenants seeking any concessions from their landlord should be clear about why this is necessary. Landlords should provide concessions where they are reasonably able, in consideration of their own financial situation. Landlords should similarly be transparent with Tenants as to why they may have to refuse requests for assistance.

Where a Tenant wishes to renegotiate their rent liability, the Code provides a list of factors for Landlords to consider when assessing the Tenant's financial position, such as:

• The length of time the Tenant's business was closed;
• How the Tenant's business trading was restricted due to social distancing rules;
• Any costs incurred by the Tenant to protect the employees and customers of their businesses; and
• The Tenant's financial obligations to other parties such as employees and lenders.

Furthermore, the Code provides a list of potential arrangements that both parties could agree to, including:

• A full or partial temporary rent-free period;
• Provisions for ending the agreed solutions on a fixed date, or on reach of particular conditions;
• Increasing payment periods, such as quarterly to monthly, to make the rent more manageable; and
• Waiving any interest on unpaid rents or rents paid in arrears to make payment plans more affordable.

Conclusion

It is important to note that the guidance provided by the Code is considered to be best practice and is voluntary, but does not alter any underlying legal relationship between landlord and Tenant, but it does identify important principles for both Tenant and Landlord to consider when beginning re-negotiations. You should seek legal advice before offering or accepting any changes to your terms and document them in a legally binding arrangement.

For more information contact Jo Higham in our Commercial Property department via email or phone on 01772 220177. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

Learn more about our Commercial Property department here

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