Due to the current COVID-19 crisis, the UK government has published a temporary Code of Practice. This Code will apply until June 2021 and encourages commercial landlords and tenants to work together and support each other when discussing rent payments and any arrears, to prevent viable businesses going under, and support a prompt economic recovery.
Although the Code is voluntary and non-binding, it details ‘best practice’ in respect of commercial lease rent discussions throughout the current COVID-19 crisis. These best practices include the following guidance:
- Rent payments and arrears
Tenants are encouraged to pay as much of their rent on the usual payment dates as possible, and as far as possible, landlords should be understanding to their tenant’s financial hardship. The liability for any unpaid rent shall remain the liability of the tenant, unless they have agreed a formal compromise with their landlord.
If a tenant is seeking to temporarily pay a reduced rent, they should provide their landlord with the required financial information, so their landlord can consider this with their request. Where possible, landlords should agree to a proposal for reduced rent. When this is not possible landlords should provide their tenants with sufficient details explaining why their request has been denied.
If a reduced rent is temporarily permitted by the landlord, tenants are advised to enter into a formal rent repayment plan to protect them against forfeiture for non-payment of rent.
- Insurance and service charge
Tenants should prioritise paying as much of their insurance rent and service charge as possible, ahead of any rent payments to their landlord. Additionally, to reflect the tenant’s absence and reduced use of the property, service charges should be reduced by the landlord where possible and payments spread over a shorter periods to enable the tenant to keep up with the payments. If additional services are required due to the COVID-19 crisis, landlords should reduce these additional costs as much as is reasonably possible.
Should the service charge payable by the tenant be reduced overall as a consequence of the tenant’s limited use of the property, such reduction should be passed onto the tenant as soon as possible to assist the tenant’s cash flow and business viability. Moreover any management fees payable should only be charged for actual work undertaken in managing the property during the COVID-19 crisis.
In addition to the Code there are already several temporary protective measures to assist landlords and tenants which include;
- protection under the Coronavirus Act 2020, which has introduced a moratorium on forfeiture due to missing a rent payment until 30 September 2020;
- the Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020 which prevents landlords from exercising their rights under the Commercial Rent Arrears Recovery unless they are owed 189 days’ or more unpaid rent between 26 March 2020 and 30 September 2020; and
- prohibiting the service of statutory demands between 01 March 2020 and 30 September 2020 as well as the service of winding up petitions between 27 April 2020 and 30 September 2020.where a company cannot pay its bills due to COVID-19, under the imminent Corporate Insolvency and Governance Bill.