The Code of Practice for commercial property relationships during the COVID-19 pandemic and the extension on forfeiture01/07/20
Last week, the government confirmed that the regulations providing protection from eviction for commercial tenants have been extended from 30 June to 30 September. This includes extension of the suspension on forfeiture and associated statutory provisions of winding-up to ensure that landlords cannot forfeit a lease where tenants are unable to pay their rents under their lease. In addition to the extension, the government has produced the Code of Practice for commercial property relationships during the COVID-19 pandemic. Alexander Gray and Susie Rogers set out key features of the extension and what the new code means for registered providers (RPs), below.
Landlords will be unable to use the commercial rent arrears recovery unless and until they are owed 189 days’ of unpaid rent, an increase from the previous threshold of 90 days. Whilst this provides greater protection for tenants, landlords will in any case have to wait until September before proceeding with any meaningful action to either claim rent arrears or forfeiture or winding-up for any default owing to tenants affected by COVID-19. Landlords are encouraged by the government to review their finance facilities separately.
A new code
Whilst entirely voluntary, the code aims to provide guidance for landlords and tenants alike, on how they may wish to conduct their relationships in good faith. In place until at least 24 June 2021, the code recommends that both parties act in good faith, and may consider reaching new agreements or amending the current lease in place to navigate the commercial property landscape during COVID-19. For example, both parties should consider any changes to their long-term viability of their respective businesses and landlords should be “willing to consider a reasonable case put forward by the tenant in such distress.” Despite this, the relationship between both parties will continue to be governed at law and in the lease, with each party remaining liable for its covenants and obligations to be performed in the lease, the sole exception being the forfeiture and rent payment provisions detailed above.
The code offers practical examples where the landlord and tenant may consider altering their relationship and lease. For instance, amending payment periods to be shorter, from quarterly to monthly and reductions of rent. More practically, the parties may consider how the commercial premises are, or will be, used. It is suggested that landlords should, for example, pass on any reduction in service charges owing to empty premises, to tenants. The parties may also consider how best to share costs to make premises compliant with COVID-19 health and safety requirements.
The new code aims to encourage and foster a spirit of co-operation between landlord and tenant going forward, and provides useful examples where the parties may wish to discuss and renegotiate their commercial relationships.
Landlords should be mindful of how their investment and finance is secured in the coming months, whilst ensuring that they are responsive and flexible to tenants’ needs and circumstances. A number of tenants will be looking ahead to re-opening, if not already then on 4 July as the next stage of lockdown lifting is introduced. Tenants should likewise stay in communication with their landlords and discuss both the financial and day-to-day aspects of the commercial premises.
How can Capsticks help?
Capsticks’ extensive experience with registered providers of social housing can help you, as landlord or tenant, with commercial leases, ensuring that the appropriate balance is struck to ensure your charitable objectives can be met. We provide a truly full-service, with particular expertise in development, corporate and securitisation, housing leasehold, governance and asset management.
If you have any queries around what's discussed in this article, and the impact on your organisation, please speak to Susie Rogers to find out more about how Capsticks can help.