Real Estate Tip of the Week: Code of Practice for commercial property

Published 6 July 2020

As May saw the beginning of the release of lockdown in England, it is clear that the lifting of restrictions is presenting new challenges. This is even more apparent following the local lockdown of Leicester last week.

Our recent article issued on 22 June 2020 highlighted the release of the Code of Practice for Commercial Property developed by the Government in conjunction with a working group comprised of organisations within the commercial rental sector. The Code of Practice not only provides tenants with the valuable extension of protection from forfeiture until 30 September 2020, it also provides for the following guidance to help landlords and tenants reach suitable outcomes for both of their businesses:

1. Principles – when negotiating lease concessions both landlords and tenants should act with ‘Transparency & Collaboration’, adopt a ‘Unified Approach’, make use of ‘Government Support’ where possible and act ‘Reasonably & Responsibly’. Where specific agreement cannot be reached, use of a third party mediator is recommended to facilitate discussions.
2. New Arrangements – a list of options for new arrangements are provided for which include (i) a full/partial rent free period, (ii) landlords drawing from rent deposits without requiring the tenant to top them up until it is realistic to do so, (iii) splitting the cost of rent for unoccupied periods and (iv) landlords waiving default interest on late or unpaid rents. The guidance recognises that these concessions could be granted in return for the tenant signing up to a new reversionary lease, removing a break right or agreeing to a lease extension.
3. Service & Insurance Charges – if there is a known net reduction in the service charge due to lack of use of a property, landlords are encouraged to pass savings on to tenants as soon as possible. The guidance does, however, acknowledge that in some cases costs will increase due to additional health & safety compliance requirements.

While the guidance has been welcomed by the commercial property sector, it is recognised that it is not compulsory. This raises significant questions such as what the incentives are for compliance, what are the ramifications of non-compliance and what would be the timescales if mediation is required. Only time will tell.