A new voluntary code of practice drawn up by the government to help ease tensions between landlords and tenants has been welcomed by the property industry.
A working group was set up by the government with the commercial rental sector with the aim of publishing the code before the June quarterly rent date. Consultation for the code of practice officially closes on Friday 12 June, but draft documents seen by EG show how the code aims to facilitate discussions between landlords and tenants by “communicating best practice and presenting a unified approach for the industry”.
“It is not the intention of this code to undermine or alter the basis of the legal relationship or existing lease contracts, or override arrangements which have already been put in place,” states the document.
“It remains the case that tenants remain liable for rent arrears, unless this is renegotiated by agreement with landlords.”
It adds: “Tenants who are in a position to pay in full should do so, and tenants who are unable to pay in full should pay what they can.” Similarly, landlords should support affected businesses where they can afford it.
Although the code applies to all commercial tenancies held by businesses impacted by the Covid-19 crisis, it is expected that hospitality, leisure and retail businesses, particularly those based in high streets and town centres, will require it the most.
The document also suggests that this code may not be the only government intervention in the commercial rental industry, in its effort to support the financial health of the sector.
Navigating rental payments
The draft code stipulates that a formal written rent payment plan “should protect against forfeiture for non-payment of rent under the previous lease terms”, after the temporary moratorium on lease forfeiture is lifted, for as long as the rent payment plan applies.
Tenants seeking concessions should be “prepared to provide justification for their request through a transparent approach to the properties in question”, by providing the relevant financial information.
Landlords refusing concessions should also show the same transparency with financial details.
If landlords and tenants are unable to reach a specific agreement, a third party mediator could be employed by mutual agreement to “help facilitate negotiations.”
Guidance on service charges
It also advises that any service and insurance charges payable under lease agreements should continue to be paid in full, and that tenants should prioritise these ahead of rent payments.
These charges should be reduced accordingly where the lack of use of a property has lowered the service charge costs incurred.
Where additional service costs are required, for example for operating a building that complies with Covid-19 health and safety requirements, landlords should ensure that service charge costs are reduced where reasonably possible and frequency of payment should be spread over shorter periods.
While the code is largely welcomed by the property industry, Revo chief executive Vivienne King pointed out that calls for a furloughed space grant scheme have not yet been addressed.
She said: “There remains a very strong case for government to underwrite rents at this stage to prevent the current stress in the commercial property market having a long-term impact on the wider economy via lenders and the savers and pension funds invested in retail property.”
Scope to lift moratoriums early
She does endorse the voluntary nature of the code, however.
“Revo does not support a mandatory code; it is not designed as law, and if it was this would undermine the fundamentals of existing contractual agreements and cause even greater instability across the commercial property market,” she said.
Melanie Leech, chief executive of the British Property Federation, added: “By encouraging parties to engage, the code should support an early lifting of the moratoriums on landlord action for non-payment of rent, which the government has always made clear were meant to be no more than a short-term exceptional measure to provide a breathing space for discussions to take place and agreements to be reached.”
But Leech pointed to “a missing piece of the jigsaw”. “The scale of the challenge facing the retail and hospitality sectors cannot be dealt with by collaboration alone,” she said. “Without government grant support many businesses face an insurmountable challenge to recover and our high streets risk being starved of investment for the future.”
See also: Government to issue code of practice to help retail landlords
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