It's been over four months since the government published its Code of Practice for commercial property relationships. The Code is not legally binding; it is a voluntary set of guidelines which encourage landlords and tenants to recognise the novel challenges presented by the COVID-19 pandemic and 'to identify mutual solutions'. This blog discusses key takeaways from the Code for both landlords and tenants while looking to whether the Code, which applies until 24 June 2021, could have a more authoritative role in the future.
What is 'best practice' according to the Code?
The Code is clear that tenants who can pay rent, should pay rent. For those tenants who cannot pay rent, the Code recommends parties collaborate to negotiate affordable rental agreements. Landlords are advised to take into account:
- the impact of the restrictions on tenants, including closures and shortened opening hours;
- extra costs and obligations through adhering to guidance and social distancing (although this could apply equally to landlords depending on the terms of the lease);
- reduction of service charges where lack of use of the property has lowered the service charge costs incurred;
- government support offered to tenants; and
- tenants' track records for making payments.
Must parties show that they have adhered to the Code prior to raising court proceedings?
The Code does not have the same status as a 'pre-action protocol', meaning that legal proceedings could be raised by either party without the need to show that they have paid any attention to the Code.
However, landlords and tenants should keep a close eye on whether the Code becomes subject to future court action. It is easy to see a situation with a tenant being robustly pursued by a landlord for arrears or, a particularly evasive tenant may seek to utilise the Code to argue that proceedings have been raised prematurely.
It is, therefore, important for the parties to seek to engage not only with the Code itself but also with the spirit of it.
Further lockdown measures
It may become increasingly difficult to advocate for widespread adherence to the Code without legislative measures to bring it into law, as we begin to see more lockdowns being imposed by the government. Some tenants will experience more financial strains than others, while larger companies renting various units across the UK will see a divergence in performance. An example of this is already seen with businesses able to trade online but have seen closure of their physical outlets. Tenants are going to want to maximise cash-flow during the period of uncertainty.
Hindsight may show the Code (as well as the temporary Covid legislative interventions) to have been unfair to landlords, for failing to address situations where a tenant is being affected by restrictions for one or more physical shop unit, but is performing strongly elsewhere such as in online services.
Where the government wishes to bring the Code onto a statutory footing, revisions and amendments should be made to the current form, committing tenants to payment of lease liabilities such as rent arrears.