To provide further clarity for landlords and tenants, on 19 June 2020 the Government published guidance for the commercial property sector, in the form of a Code of Practice. The Code of Practice is voluntary and encourages good practice between landlords and tenants, promoting payment of rent by tenants where this is possible, but also acknowledging that landlords are expected to support businesses unable or struggling to pay. The over-arching principles of the Code are co-operation between landlords and tenants; acting reasonably and responsibly; transparency, and conducting their dealings in good faith. The Code does not override property law and the underlying legal relationships governed by the lease, contracts and any guarantees in place between landlord and tenant. It does, however, place emphasis on its use as best practice. In relation to rent payment, it sets out that landlords should be mindful of the financial consequences of the coronavirus crisis impacting the ability of the tenant to pay, and that requests for rent concessions should be justified by tenants, and landlords refusing such requests should give reasonable explanation for their refusal.
In considering a tenant’s request to renegotiate their rent, the Code lists circumstances for landlords to bear in mind in terms of assessing the tenant’s overall financial position. Importantly for landlords, these include the tenant’s previous track record under the lease terms, and any concessions to the tenant already agreed. The Code is also clear that new arrangements that could be agreed by both parties could include a reversionary lease on reasonable terms, the removal of a break right in favour of the tenant, or an extension of the lease.
In terms of the expectation for landlords to act reasonably in relation to rent recovery, it can be concluded that the guidance within the Code is open to interpretation and will depend heavily on each individual circumstance, but that a tenant in trouble pre-COVID-19 is likely to remain a tenant in trouble post-COVID-19. Therefore, a tenant persistently in breach of rent payment obligations prior to the crisis is expected to have difficulty arguing that COVID-19 was to blame, and that where the crisis is genuinely to blame landlords are expected to be more lenient, and seek to reach an agreement, the form of which can be taken from those suggested in the Code.
To assist landlords with options and current restrictions with enforcing rent payments, please view our Covid-19 rent arrears enforcement summary table.