The Government has published a Code of Conduct between Landlords and Tenants for Commercial Rents as a response to the impact of COVID-19 on the economy and the resulting difficulties experienced by many businesses in meeting their lease obligations in rented property. This Code of Conduct appears to be very similar to the Code of Practice for Commercial Property Relationships during the COVID-19 Pandemic published by the UK Government in June.
Why have a Code of Conduct and what will it achieve?
The stated intention of the Code is to “promote and reinforce good practice in landlord and tenant relationships as they deal with income shocks caused by the pandemic”. It is important to note that it is a voluntary code with no statutory basis. Landlords and tenants both remain obliged to comply with the contractual obligations in the relevant leases and the underlying principles of Landlord and Tenant law. In theory therefore, both parties can choose to ignore the Code, and landlords in particular are not prevented from pursuing debt recovery, ejectment and other proceedings where tenants have not complied in full with lease obligations. It is likely however that when any such proceedings come before the courts, regard may be had to the extent to which either or both parties acted in accordance with the Code. For example, a landlord seeking an ejectment order against a tenant may find that the court allows the tenant some leniency in the form of additional time to meet its obligations in circumstances where the landlord has not engaged with the tenant as envisaged by the Code.
What is in the Code?
In many respects, the principles outlined in the Code could be considered to reflect a “common sense” approach to negotiations between landlords and tenants. Commercial landlords recognise that it is not to their benefit that the business of their tenants should fail, so there is a mutual interest in agreeing revised terms that work for both parties.
Some of the principles outlined in the Code are as follows:
- Tenants who are in a position to pay in full should do so.
- Landlords should provide assistance to a tenant where reasonably possible having regard to their own financial responsibilities.
- It is recognised that landlords may be constrained by their own financial obligations, and any concessions to tenants would require the consent of lenders.
- Both parties should act reasonably swiftly, transparently and in good faith in order to identify and implement mutually beneficial solutions.
- Alternative dispute resolution mechanisms should be used if necessary.
The Code suggests a number of possible arrangements that might be availed of and many of these, such as rent-free periods, rent deferrals, rent variations and turnover rents, are already being implemented in many landlord and tenant arrangements.
The Code recognises that service and insurance charges arrangements are not profit-making, and such charges need to be paid in full, although landlords are encouraged to take measures to reduce such charges wherever possible, and also to vary payment arrangements if possible to aid tenant cashflow.
Will the Code have any effect?
It remains to be seen whether the publication of this Code will have any material impact on dealings between landlords and tenants. Most landlords have already recognised that many of their tenants need assistance to survive and it is likely that that this commercial reality will continue to be the greater influencing factor.