On 1 October 2020, the Department of Business, Enterprise and Innovation published its new Code of Conduct between Landlord and Tenants for Commercial Rents (the Code). The Code has been introduced in order to facilitate discussions between commercial landlords and tenants which have been impacted by COVID-19. The Code is voluntary, and its purpose is to promote good practice in landlord and tenant relationships with a view to mitigating the adverse financial impact of the pandemic.
“Reasonably, swiftly, transparently, and in good faith”
The over-arching principles of the Code encourage landlords and tenants to act “reasonably, swiftly, transparently, and in good faith”. Where landlords and tenants have followed these principles but have been unable to reach a specific agreement, the Code suggests mediation as a means of reaching a compromise.
These principles are seen clearly where the Code suggests that tenants who are in a position to pay their rent in full, should continue to do so. A tenant should only approach their landlord seeking an alternative arrangement if they are unable to meet their financial commitments. If a tenant is seeking support from their landlord, they should be clear as to why this is required and should provide financial documentation to back this up. The Code notes that landlords should assist tenants where possible, however, it is also recognised that a landlord’s ability to do this may be curtailed by their own financial situation. If a landlord is unable to offer flexibility, the Code suggests that they provide their tenant with an explanation of their decision, so as to promote a dialogue between the parties.
When considering a tenant’s request, landlords are encouraged to take into account the specific ways in which COVID-19 has impacted their tenant’s business. For example, whether the business has had to substantially curtail trade due to social distancing requirements or whether it has incurred significant costs when trying to protect customers and staff, this ought to form part of their consideration.
New Arrangement Suggestions
A number of new arrangement options were suggested by the Code, such as a full or partial rent-free period, a deferral of rent or part of the rent for a period, and a payment of rent over shorter periods, including provisions for arrears.
As part of the renegotiation, the Code suggests that the landlord might request a benefit in its favour in light of a concession in favour of the tenant.
Service and Insurance Charges
The Code also notes that service charges and insurance charges are not profit-making, and such charges must be paid in full. However, the Code acknowledges that this may also impact tenant’s finances and suggests that any reduction in statutory charges or insurance should be passed down to the tenant in the appropriate proportion.
It is already a reality that landlords reach concessionary agreements when tenants face financial difficulty. It is envisaged, however, that the Code will support this, and provide practical guidance for both parties. It is important to emphasise that the Code is voluntary in nature and each party to a commercial lease remains obliged to meet the terms of the lease unless a renegotiation is agreed in accordance with the terms and conditions of the existing contract. However, one would expect that it would be dimly viewed if a landlord did not take into consideration the Code when faced with a request from its tenant for assistance.