On 29 May, the Government announced that it is working towards publishing a new code of practice in relation to the commercial property sector. A link to the Government’s announcement is here.
The code seeks to encourage all parties to work together to protect viable businesses and to ensure a swift recovery for the economy. The code’s aim will be to encourage discussions between landlords and tenants over rental payments during the coronavirus pandemic and to provide guidance on rent arrear payments and the treatment of sub-tenants and suppliers.
The Government has set up a working group with representatives of the commercial rental sector. The group will also seek wider business input, with the hope it will enable greater collaboration and cooperation across the sector. Although it will initially be temporary in nature, the Government has indicated it will explore options to make the code mandatory if necessary.
The timing of the announcement is not surprising. The code is to be published ahead of the upcoming quarterly rent payment date, 24 June. The March quarter day fell just as the UK-wide lockdown was introduced. Whilst many tenants ought to have been in a position to pay the March quarter’s rents as they had been trading up to a point shortly before that date, nevertheless a number of large landlords indicated that their rent collections were dramatically lower than usual for that quarter day as tenants sought to preserve cash so that they could ride out the lockdown period. If the March quarter day was difficult for landlords and tenants, the June quarter day promises to be even more so for the simple reason that many tenants within the retail, leisure, hospitality and office sectors in particular have not been able to use their premises or been able to trade during the lockdown period. That means that many tenants may well now have little cash available to discharge the June rents.
It will be interesting to see how the government deals with the priorities of both landlords and tenants in the upcoming code. Landlords have certainly complained that the previous protections which the UK Government has put in place have favoured tenants at the expense of landlords. Those protective measures included the moratorium on forfeiture, the stay of possession proceedings, the limitations on the use of Commercial Rent Arrears Recovery and the restrictions on statutory demands and winding up petitions. For more information on those measures see our articles here and here. Many landlords have already been proactive in finding ways to help assist their tenants in the short to long term, by offering rent holidays, reductions or deferments. However, if the code asks landlords to exercise further restraint, it is entirely possible that landlords will in turn need to be offered protection from enforcement being taken against them by their funders.
As we have said previously, these are difficult times for both landlords and tenants, made even more tough as a consequence of the uncertainty as to how long it will be before things return to a semblance of normality. Whilst there is not necessarily one correct way of approaching the issues, open, collaborative discussions between landlords and tenants should take place at the earliest possible opportunity with the aim of achieving as much certainty as possible for both parties during this period.
For further information regarding the issues raised here, or for more specific advice, please contact a member of the Property Litigation team.