June 02, 2020

UK Government to publish code of practice for commercial property sector as June quarterly rent day looms


As the June quarterly rent day looms, the government has announced it is set to publish a new code of practice to support high street landlords and tenants. The code is said to be designed to provide “clarity and reassurance” over rent payments by encouraging “fair and transparent” discussions between landlords and tenants. It also aims to provide guidance on rent arrear payments and treatment of “sub-letters” (which we assume means sub-tenants) and suppliers.  This code will add to the package of protective measures introduced by the government for tenants in the commercial sector who failed to pay the March quarter’s rent, including the moratorium on forfeiture, the stay of possession proceedings, the limitations on the use of Commercial Rent Arrears Recovery and the restrictions on statutory demands and winding up petitions.  Initially the code will be introduced on a temporary basis. The government has indicated they may look to make it mandatory if considered necessary.

The government has set up a working group with representatives from the commercial rental sector for the purpose of publishing the code before the June quarter day (i.e. 24 June). The timing of this is perhaps not coincidental as the pressure on the high street is likely to be even more acute at present and the government has already indicated that the lockdown will be eased on 15 June to allow non-essential shops to re-open, so introducing the code now will assist retailers to re-open their stores by giving them more certainty in their dealings with their landlords.  The March quarter day fell just as the lockdown was introduced. Most tenants would already have set aside payment or at least had the benefit of trading during the December quarter. Although it is understandable that a tenant might have wanted to preserve cash to tide them through the lockdown it is hard to see that the lockdown could itself have caused an inability to make payment of the March quarter’s rent. This will not be the case in June. Retailers and hospitality operators forced to close their premises and unable to trade remotely will have received little or no revenue during the period from March to June, and many will genuinely not be able to pay the June quarter’s rent, let alone both the June and the outstanding March quarter’s rent.

In such circumstances, it might be tempting for landlords to look to the remedies that remain available (such as debt claims, claims against guarantors or previous tenants) however it is likely such action may simply invite further regulation from the government and unless the remedy lies against a financially robust third party there may be little chance of recovery in any event.

The majority of landlords have not been indifferent to the impact of the coronavirus crisis on their tenants and have been proactively working to find ways to restructure their rent payments to assist in the short to long term including agreeing to rent holidays, rent reductions and rent deferments. However, if landlords are being asked, or required, to exercise even more restraint then they must also be offered protection from enforcement action by lenders if they are not able to service debt due to tenants defaulting.  Equally tenants need to recognise landlords have been impacted by the coronavirus too and think carefully about the concessions they are requesting and what consideration they can provide through re-gearing or collateral deals.  The government’s measures to date have focused on protecting tenants and occupiers, so it is to be hoped that the code will strike a fair balance between the separate interests of landlord and tenants.

We will wait with interest for the publication of the new code of practice to fully understand how it will work in practice.

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