Government to publish code of practice to provide “clarity and reassurance” over rent payments
With the June quarter day approaching, the Government has announced that it will publish a new code of practice which is set to encourage “fair and transparent” discussions between landlords and tenants.
It will also provide guidance on rent arrears payments and treatment of subtenants and suppliers.
The code is arguably another attempt by the Government to protect tenants in the commercial sector who were unable to pay the March quarter’s rent as a result of COVID-19. As many retailers and hospitality providers have been unable to function remotely, it's assumed that there will be tenants who will be unable to pay the June quarter’s rent.
The code will be introduced on a temporary basis, however the Government has suggested that it may look to make it mandatory, if necessary.
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 will arguably allow tenants to reopen their businesses with greater certainty in their position with their landlords and grant them the chance to ‘bounce back’."
Whilst many landlords have been finding ways to restructure their rent payments by agreeing to rent holidays, rent reductions and rent deferments, there have been concerns by landlords of their own debt to lenders at this difficult time.
To date, the Government’s measures (including the moratorium of forfeiture, the stay of possession proceedings, limiting the use of Commercial Rent Arrears Recovery and restricting statutory demands and winding up petitions) have focused on protecting tenants, so it will be interesting to see whether the Government will this time strike a fair balance between the interests of both the tenants and the landlords.
We await the publication of the new code of practice to see what direction the Government will take and how it will work in practice. As before, it is unlikely there will be any permanent arrangements forced upon any party. For example, previous arrangements have seen a suspension of rent liabilities rather than a waiver.
It remains the case that a sensible dialogue between landlords and tenants is the best policy and only if mutually agreeable arrangements cannot be reached should formal legal action be contemplated. Any arrangements which are agreed should be properly documented to ensure obligations are understood and enforceable going forward.
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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.