New voluntary Code of Practice for commercial property relationships in the UK
Updated: Jan 24, 2022
12 August 2021
On 19 June 2020, Government has published a Code of Practice to encourage commercial tenants and landlords to work together to protect viable businesses during COVID-19.
The Code of Practice is published in response to the impacts of COVID-19 on landlords and tenants in the commercial property sector and covers the whole of the United Kingdom.
This Code sits alongside other measures, such as the moratorium on forfeiture of commercial leases and changes to Commercial Rent Arrears Recovery, statutory demands and winding up petitions, which provide tenant businesses the breathing space to work with landlords and other partners on a plan for a sustainable future.
It is a voluntary Code, and the government has confirmed that it does not change the underlying legal relationship or lease contracts between landlord and tenant and any guarantor.
This code applies to all commercial leases held by businesses which have been seriously negatively impacted by the COVID-19 crisis, whether, for example, in the hospitality, retail, leisure, office, industrial and logistics, ports, or rural sectors – but it is expected that the hospitality, leisure and parts of the retail sectors will have most need of it.
Businesses within the agricultural sector may also want to consider the principles included, whilst acknowledging the differing legal framework for agricultural tenancies.
The Code sets out a number of principles that should be taken into account by landlords and tenants, including transparency and collaboration, unified approach, government support, acting reasonably and responsibly. Thus, in seeking a new arrangement and any changes to rental payments, landlord and tenant should act in good faith, reasonably and flexibly as set out in the principles above.
The Code acknowledges that legally tenants are liable for covenants and payment obligations under leases, unless this is renegotiated by agreement with landlords. Tenants who are in a position to pay in full are encouraged to do so. However, tenants who are unable to pay in full should seek agreement from landlords to pay what they can. The Code suggests various options for new rental arrangements.
The Code also considers service charge arrangements. For example, it states that where there is a known net reduction in overall service charge due to lack of use of a property, this reduction should be passed on to tenants as soon as possible ahead of the end of year reconciliation in order to help with cash flow and business viability.
The new Code of Practice can be accessed here.
The Code represents a good starting point on the road to economic recovery. It builds upon the discussions already taking place by giving those tenants and landlords affected by the crisis the tools to come to a mutually beneficial agreement; ensuring that best practice becomes common practice. The Code, and the signatories' support of it, will apply until 24 June 2021.
If you require further guidance regarding the impact of the COVID-19 on commercial property relationship or advice on commercial property taxation in general, please contact us on email@example.com or firstname.lastname@example.org