Rent problems? How to use the new code of practice for businesses and commercial landlords

The government published a new code of practice on 19 June, designed to help Covid-19-affected businesses and landlords work together on rent payment issues.

The code of practice is a bid to support businesses in distress due to Covid-19 restrictions, helping landlords and commercial tenants find solutions for affordable rental agreements. If you’re struggling to pay the rent, having a conversation with your landlord using the code as a guide could give you both a clearer plan of action.

The code is voluntary, however, and written as a guide to best practice. It can’t override any legal terms you’ve agreed with your landlord.

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What is the code of practice?

The government has published the code as a new, voluntary way for landlords and businesses to talk through rent issues and negotiate affordable rent solutions and agreements.

It emphasises that landlords and their commercial tenants need to work together to protect the business from failing due to Covid-19, and the code is a way of structuring conversations around rent.

Can I read it?

The code is available at gov.uk, or you can download it as a PDF.

Who has written the new code of practice?

The code has been developed by the government and leaders in the sector, including the British Retail Consortium (BRC), British Chambers of Commerce (BCC), British Property Federation (BPF) and Commercial Real Estate Finance Council Europe (CREFC).

It’s also been endorsed by the Agricultural Law Association (ALA), British Beer and Pubs Association (BBPA), Federation of Small Businesses (FSB) and Property Owners Forum, among others.

Which businesses does it apply to?

It’s written for commercial leases across all sectors, but will probably be most useful for retail, hospitality and leisure businesses.

What does it say?

Before we get into the detail, the code repeats the government’s message that if you can afford to pay your rent, you should. If you can’t, you should pay what you can, and landlords should provide you with support wherever possible.

Key principles

This is what the code is based on. They should shape any discussions you have with your landlord:

• transparency and collaboration – you both have a mutual interest in business continuity, and should act reasonably, swiftly, transparently and in good faith
• a unified approach – you’ll support each other in all dealings with other stakeholders (including banks and utility companies), to meet the code’s objectives and help manage the effects of Covid-19
• recognition of government support – have either of you received Covid-19 related subsidies or relief? If so, these are intended to help you meet your commitments
• acting reasonably and responsibly – you’ll both recognise the impact of Covid-19, and find solutions for the most pressing issues

You might have already been acting on principles like these. If you were and you still can’t reach an agreement with your landlord, the code advises looking into third party mediation – but only if it makes financial sense.

Your responsibilities

If you’re asking for a concession from your landlord, you need to be clear on why it’s needed. This means:

• being transparent about your request
• providing financial information about your business (as appropriate)
• thinking about how to protect any commercially sensitive information

Your landlord’s responsibilities

In turn, the code states that your landlord should:

• give concessions where they reasonably can, taking into account their own duties and commitments
• be clear about why they’re refusing any concessions
• if refusing, they need to give a reasonable explanation which takes the information you’ve provided into account
• like you, they’ll need to protect any commercially sensitive information

The code encourages landlords to think about their own financial position, as well as yours, and how certain issues and restrictions may have caused real harm to your business. These include:

• any closure period, especially if you can’t trade by other means
• duration and extent of restricted trading
• extra costs and obligations, because of social distancing
• needs of other stakeholders, such as banks and employees

They should also consider how you’ve used and government support, and your track record as their tenant.

Possible agreements

The code sets out a list of options you and your landlord could consider to make life more affordable in light of Covid-19. These include:

• full or partial rent-free periods
• deferring the rent
• changing the rent payment periods (eg monthly instead of quarterly), with provision for payment in arrears
• rental variations – see gov.uk for more details
• landlords drawing on rent deposits
• rent reduction across any other units you may occupy
• waiving contractual default interest on unpaid rents or rents in arrears
• end dates and trigger points for certain arrangements
• splitting costs

Service and insurance charges

Finally, the code looks at essential insurance and service charges. It acknowledges that these should continue being paid in order to keep the building safe and fit for purpose. However, it advises service charges to be:

• reduced accordingly where the property may have been out of use and costs lowered (the code does acknowledge that Covid-19 may have caused some costs to be raised)
• reduced where practicable and to provide best value
• spread over shorter periods, where possible
• monitored, and any net reduction in overall costs passed on to the tenant
• reflective of actual work carried out (this also applies to management fees)

Any agreement you do reach for service charges will need to take into account the Royal Institution of Chartered Surveyors (RICS) Professional Statement Service Charges in Commercial Property, 1st edition.

It should also factor in all RICS guidance in relation to service charges and Covid-19.

Is my landlord legally obliged to follow the code of practice?

No, the code isn’t legally binding. It’s written as a voluntary document, and designed to encourage commercial landlords and tenants to work together.

However, if your discussions have stalled or you don’t know where to start, the code can also provide a useful structure to get the conversation moving.

Have you and your landlord discussed alternative rent arrangements, or the code of practice? What do you think of it? Tell us in the comments.