Landlord and Tenants: The Code of Practice for Commercial Property Relationships During COVID-19

Earlier this year, the UK Government published a Code of Practice for commercial property relationships during the COVID-19 pandemic (“the Code”).  The Code contains a set of principles to be considered by parties to leases in the current circumstances.  This briefing provides an overview of the Code.

What is the nature of the Code?

• The Code is not law; adherence to it is voluntary.  It does not change the underlying legal relationship in existence between landlords and the tenants.  Legal advice should be sought if you are either the landlord or tenant under a lease and you are seeking to vary its terms temporarily.

Where and when does the Code apply?

• The Code applies UK-wide.  Although the law regulating leases is different between England and Wales and Scotland, the Code focuses more on practical advice and, in any event, it also acknowledges these differences.
• The Code applies from 19 June 2020 through to 24 June 2021.

To what leases can the Code apply?

• Subject to the caveat noted above about the Code’s non-binding nature, meaning that adherence to it is voluntary, the Code is intended to apply to all commercial leases held by businesses which have been seriously negatively impacted by the COVID-19 crises, with explicit reference to hospitality, leisure and some retail sectors. 
• Reference is also made in the Code to businesses within the agricultural sector and how they may also wish to consider the principles of the Code.  However, as the Code notes, there are different, far more complex statutory regimes covering agricultural tenancies and the Code is not expressly intended to cover these. 

Does the Code have support from industry bodies?

• Yes.  Signatories to the Code include the following, some of whom were part of the Code’s steering group:
  • British Chamber of Commerce
  • British Property Federation
  • British Retail Consortium
  • Royal Institution for Chartered Surveyors
  • Scottish Property Federation

What are the Code’s principles?

• Transparency and collaboration – this principle recognises that landlords and tenants have a mutual interest in business continuity and that parties will act reasonably, swiftly, transparently and in good faith.
• A unified approach – that landlords and tenants will support each other in dealings with other stakeholders, such as governments and banks to achieve outcomes consistent with the Code.
• Government support - where either landlords or tenants have received government subsidies, it is recognised that it is to help businesses to meet commitments including supplies of goods and services as well as rent and other property costs.
• Acting reasonably and responsibly – that both parties operate reasonably and responsibly in the context of COVID-19 to identify mutual solutions where most needed.
• Mediation as a next step solution – this principle recognises that these foregoing principles might not lead to a specific agreement by parties but that a negotiated outcome could still be achieved by mutual appointment of a third party mediator if: (a) the costs are proportionate; and (b) on the understanding both sides bear their own costs.

Is there further guidance beyond the principles?

Yes, there is guidance on the following:

• How tenants should request concessions (e.g. rent reductions), including the information that tenants should provide.
• How landlords should consider tenants’ requests, including a list of non-exhaustive factors that would give an indication of the extent to which the tenant’s financial position has been impacted.
• What interim arrangements could be adopted (e.g. deferrals in rent; drawing from rent deposits without requiring immediate top up; reducing the rent).
• How to address payments of service charges and insurance.

Davidson Chalmers Stewart’s Commercial Property and Dispute Resolution teams are well-placed to advise on variations to leases and disputes arising from leases. If we can be of assistance, please contact Sheila Webster

Disclaimer 
The matter in this publication is based on our current understanding of the law.  The information provides only an overview of the law in force at the date hereof and has been produced for general information purposes only. Professional advice should always be sought before taking any action in reliance of the information. Accordingly, Davidson Chalmers Stewart LLP does not take any responsibility for losses incurred by any person through acting or failing to act on the basis of anything contained in this publication.