Backhouse Jones Watermark

Commercial property relationships during COVID-19

14 July

As most tenants and landlords of commercial property will be aware, when the COVID-19 pandemic started to take effect, the government introduced a package of support which may have benefitted both parties in some way.

Initially, there was a moratorium on forfeitures and associated measures for tenant businesses and the government made available over £330 billion of guaranteed loans. This was all in addition to other measures available such as business rates relief and the Coronavirus Job Retention Scheme (CJRS).

The moratorium on forfeiture of commercial leases for non-payment of rent was due to expire at the end of June however this has now been extended to 30 September 2020. Up until this date, landlords will also be prevented from using Commercial Rent Arrears Recovery (CRAR) unless at least 189 days’ rent is outstanding.

The Corporate Insolvency and Governance Act 2020 deals with a number of key points that landlords need to be aware of. The Act prohibits the use of statutory demands and winding-up orders where non-payment is COVID-19 related. These measures are in place until 30 September 2020.

The Ministry of Housing, communities and Local Government has now released a Code of Practice for commercial property relationships during the COVID-19 pandemic. This aims to support businesses to come together to negotiate affordable rental agreements. The Code makes it clear that tenants who can afford to pay their rent in full should continue to do so however those that are struggling, should communicate with their landlord and pay what they can.

The Code is voluntary and does not affect the contractual relationship between landlord and tenant but parties are encouraged to apply the principles within it and it has been backed by a number of leading organisations including the British Chambers of Commerce, British Property Federation and British Retail Consortium.

Of course if the property is your operating centre and for some reason you are unable to access the site or temporarily move operating centres, you must make an application to the Traffic Commissioner to update your operator licence before moving. Failure to do so could land you at Public Inquiry.

The Code states that tenants seeking a rental concession from their landlord must be transparent and provide the financial information to demonstrate why the relief is necessary. A rent payment plan could then be drawn up to protect the tenant from forfeiture once the moratorium period has ended. Landlords are encouraged to provide concessions where they reasonably can, taking into account their own financial commitments and other duties.

The Code encourages continued full payment of service charges and insurance although costs may be lowered where reduced use in the property means that the maintenance and running costs are lower that what would usually have been the case.

The Code sets out a number of new arrangements that could be agreed between the parties to assist tenants that are struggling financially, these include:  

  • A full or partial rent-free period for a set number of payment periods;
  • A deferral of the whole or part of the rent for one or more payment periods;
  • The payment of the rents over shorter payment periods for a set time (e.g. monthly rather than quarterly) including provision for their payment in arrears;
  • Rental variations to reduce ongoing payments to a current market rate and/or to provide for all or part of the rent to be paid as a proportion of turnover of the site, incorporating any period during which the site was closed;
  • Landlords waiving contractual default interest on unpaid rents or rents paid in arrears to make payment plans more affordable;
  • Provisions for ending the solutions on a fixed date, or on reaching the trigger point of particular circumstances;
  • Tenants and landlords agreeing to split the cost of the rent for the unoccupied period between them;
  • Any of the above in return for other arrangements e.g. a reversionary lease on reasonable terms, the removal of a break right in favour of the tenant, or an extension of the lease.

The list provided is not intended to be exhaustive and parties may come to an agreement not mentioned, if this works best for them.

As the Code is only voluntary, it may not materially change the status quo between landlords and tenants however it may assist some tenants who, up to yet, have been unable to negotiate a viable solution with their landlord.

If you would like to speak with one of our lawyers regarding your lease agreement – landlord or tenant – please do not hesitate to contact our office on 01254 828 300.  Our experienced lawyers will help you navigate a way forward during these challenging times.

 

 

Strategic and measured business solutions providing 20:20 vision for your operation.
Bespoke training for your business DISCOVER TRAINING
24 hour legal cover for a fixed fee DISCOVER UP