Government publishes code for commercial property sector and extends suspension of evictions
On 19 June 2020, the Government published the anticipated code of practice for the commercial property sector which aims to provide clarity and transparency for commercial tenants and landlords for the upcoming June quarter.
The code encourages best practice between commercial tenants and landlords, so that they can work together to protect viable businesses. However, it is important to note that the code is only voluntary and does not change the underlying legal relationship or lease contracts between landlord and tenant and any guarantor.
A working group with representatives from the commercial rental sector has been set up with the aim of publishing the code before the June quarter day (24 June). This comes at a time when the Government plans to ease the lockdown restrictions on 15 June when non-essential shops can re-open with social distancing measures in place.
The code maintained the initial guidance from the Government which is that those tenants who can afford to pay their rent should do so, or at least pay what they can (taking into account any alternative financial resources available to them). The code also advises that any service and insurance charges payable under a lease should be paid in full but should, for instance, be reduced where the lack of use of a property has lowered the service charge costs incurred.
The Government has also announced that it will extend the existing measures aimed at protecting struggling tenants from eviction (the moratorium of forfeiture, the limitation of CRAR and the prevention of demands and winding up petitions) from 30 June to 30 September.
"As previously stated, no tenant obligations have been waived or cancelled, but enforcement options by the Landlord have been postponed once more."
In many cases, there is clearly an incentive for the Landlord and the Tenant to enter into sensible discussions, ensuring to document any changes, to ultimately reach a suitable compromise to protect the long term nature of their relationship. Although that might not stop either side from trying to take advantage of the situation, this will hopefully be a rare occurrence.
It is clear that the extension of the suspension of forfeiture will particularly come as a relief to the hospitality sector (such as pubs, cafes and restaurants). Hospitality venues and businesses have now suffered a whole rent quarter with an imposed shut down on their usual trading, following the Government’s forced closure of this sector announced on 23 March 2020. Since then, the sector has been calling upon the Government for action after not being able to trade from their premises for the entirety of the March quarter.
Now that the Government has announced that pubs, cafes and restaurants can reopen from 4 July 2020, with the appropriate social distancing measures, many businesses are preparing to re-emerge. However, this will not be easy for many businesses as whilst they must adopt the appropriate social distancing measures, which will be foreign for many in the hospitality sector, they will also face the pressure of meeting their current rent obligations whilst carrying the March and June quarter liabilities. Although arrangements between landlords and tenants are being discussed, the patience of landlords will undoubtedly run out.
Despite the Government’s efforts to allow commercial tenants breathing room and asking landlords to show restraint, commercial tenants are still faced with a long road ahead in their fight to rescue their businesses and return to some level of normality. The Government has given the hospitality sector just 10 days’ notice to prepare themselves for the return and the only thing these businesses can do is try to be ready.
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If your business needs legal support with any issues arising from COVID-19, please get in touch with James Davis.
This update was prepared by Maryam Mouzaoui.
All information in this update is accurate at the time of writing. It is meant for general information only and is not legal advice.