Commercial Tenant and Landlord Covid-19 Rent Arrears

The Government has produced an annex to supplement the code of practice to be used by commercial tenants and landlords in discussions about rent, rent arrears and on-going lease terms.

On 19 June 2020, the Government published a voluntary code of practice (“the Code”) to encourage commercial tenants and landlords to work together to mitigate the impacts of the Covid-19 pandemic and to protect viable businesses. The Code was designed to encourage transparency, to urge parties to act reasonably and to offer tenants and landlords a map out plan for economic recovery.

One of the main principals of the Code is to encourage tenants who are able to pay rent in full to continue to do so and tenants who are unable to meet their financial obligations due to the pandemic to seek an agreement with their landlord to pay what they can. This allows landlords to support those tenants who are in greatest need to sustain activity which will contribute to economic growth.

The Government recently introduced an annex to the Code to provide more clarity to businesses when discussing rental payments (https://www.gov.uk/government/publications/code-of-practice-for-the-commercial-property-sector). The purpose of the annex is to give tenants and landlords an opportunity to negotiate a resolution for the issue of rent arrears and service charges accrued as a result of the pandemic, without resort to the courts or bringing the lease to a premature end.

Tenants should be proactive in their approach and use the annex to provide sufficient information about the impact of the pandemic on their business. The tenant should set out the following information in the document:

• how business turnover has been affected by the pandemic;
• to what extent business turnover is anticipated to recover;
• details of any rental payments made since March 2020;
• an offer to address rent arrears; and
• an offer to meet ongoing rental obligations.

This will give the landlords an opportunity to make a fair assessment of their tenant’s offer and to see how they could work with their tenant to help them to recover, giving thought to their own financial position.

In determining the offer, the landlord should consider the long term impact of the tenant’s business declining and what should happen if the property is left vacant. That said, the landlord should not seek to find out personal financial information or personal guarantees from tenants if none were provided when the lease was created.

The annex is not designed to replace any existing contractual agreements made between the tenant and landlord, but to assist the parties in managing rent arrears and the tenant’s’ ongoing responsibilities.

The code remains voluntary in nature, but is relevant for all businesses that have commercial leases and who have been impacted by the coronavirus pandemic.

How we can help

If you are a commercial landlord or tenant requiring advice about the Code and/ or rental payments, you should seek advice from an experienced commercial property solicitor who can explain your options to you.

You can get in contact with our specialist Commercial Property team using our online enquiry form or by calling 0330 404 0778.