Encouraging steps on the way forward for commercial tenants

With the next quarters rental payment date fast approaching and with financial pressures coming from all directions we are seeing many tenants becoming increasingly anxious and struggling to see how they will be able to continue in a post pandemic world. The issue by the Government on Friday (19th June) of its ‘Code of Practise for commercial property relations during the Covid-19 pandemic’ is certainly a welcome step, encouraging landlords and tenants to work together for the greater good of the economy in the longer term.

As seems clear the economic disruption of the pandemic is likely to have an impact for many months to come, if not longer. The aim behind the guidance is to encourage landlords and tenants of commercial properties to collaborate to facilitate the economy recovering as swiftly as possible. In the North East steps are already being taken that encapsulate the spirit behind the Government guidance with landlords such as UK Land Estates offering support to its tenants with rent free periods in exchange for lease variations.

The initial steps taken by the Government, at the outbreak of the pandemic, to provide tenants with a degree of breathing space included a halt on the ability to terminate leases by the forfeiture mechanism, changes to the commercial rent rates recovery process and substantial business rate relief. This new guidance aims to take the next steps forward, as we move out of lock down.

The Code, however welcome, is only guidance. It does not change the legal position contained in the contractual lease between the parties. It is acknowledged in the Code that every landlord and tenant relationship is different with a wide variety of competing financial and fiduciary pressures on both but it encourages each to act in good faith, reasonably and flexibly in line with the principles outlined in the Code, for the greater good of economic recovery.

Where a tenant is not able to pay all or some of its rent the Code encourages tenants to open communications with its landlord, to see if a mutually beneficial solution can be achieved. Communication is key. The Code wants tenants to be able to feel that they can contact landlords, open dialogue about the financial impact of the pandemic and see if an arrangement can be reached which could affect whether or not a tenant is able to  survive. As part of those discussions tenants should be prepared to be transparent and provided landlords with relevant financial information. However before providing any such information tenants may want to consider protecting details that are commercially sensitive.

The Code usefully provides a list of areas that a landlord may want to consider such as how long the tenant’s business has been closed and the resultant impact, any restricted trading and additional expenditure as a result of social distancing and any Government assistance. It also helpfully provides suggested options to consider such as rent free periods, payment of rent over a reduced time period i.e. monthly or weekly and rent reductions over designated periods of time. The list in the Code isn’t intended to be exhaustive but to provide guidance, to encourage discussions between the parties. As well as the annual rent discussion could also take place around other charges i.e. contributions towards the landlord’s insurance premium and service charge obligations.

With many leading organisation such as the British Retail Consortium and RICS having signed up to the Code until 24th June 2021, hopefully, the next steps forward will see landlords and tenants working together for the greater good, even though there may be pain in the short term. Sintons has been working closely with its clients and intermediaries during the pandemic on a wide variety of landlord and tenant issues and if it can assist in any way please get in contact with either myself or one of the team.

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