The UK government has announced that it will extend measures to limit commercial landlords remedies for pursuing rent arrears. These measures are as follows:

• Extension to the period for suspension of the use of forfeiture for rent arrears from June 30 to September 30; meaning no business will be forced out of their premises if they a miss a rent payment in the next three months.

• Prohibition on the use of Commercial Rent Arrears Recovery by landlords unless they are owed 189 days of unpaid rent. This amendment has also been extended from June 30 to September 30.

• Extension of the temporary ban on the use of statutory demands and winding-up petitions where a company cannot pay its bills due to Covid-19 until 30 September.

In addition to the above a new Code of Practice (“the Code”) has been produced, applicable to all commercial leases, so as to encourage best practice between landlords and tenants regarding the payment of rent and concessions relating thereto.

The Code is voluntary and does not change the legal relationship or lease contract between landlord and tenant and any guarantor. Neither will it alter any concessions which have already been agreed. The Government’s position is that tenants who are able to pay their rent in full should do so however where they are unable to do so they should communicate to their landlord what they can pay. Landlords are also being urged to support tenant businesses where they are able to do so.

The Code requires parties to consider their own financial requirements, the closure period of the tenant’s businesses, the duration and extent of restricted trading due to social distancing (including the costs of compliance with social distancing requirements), the needs of other stakeholders (e.g. Banks, employees and suppliers), any government support received and how that has been used and the tenant’s previous track record.

The code proposes use of the following concessions:

• Rent deferral;

• Full or partial rent free;

• Change to payment dates;

• Reductions in rent;

• Move to turnover rent to reflect impact on trade;

• Waiver of contractual interest; and

• Use rent deposits (on the understanding they will not be topped up until it is realistic and reasonable to do so).

The Code is therefore incorporating a position which has been adopted by landlords and tenants to date in relation to the March quarter and is relying on landlords being able to support tenants through the impact of Covid-19.

The Code does also reference that in return for the concessions (as we have previously proposed) a landlord is offered an ‘incentive’ for example, a tenant enters into a reversionary lease (being a lease which takes effected when the exiting lease expires), there is removal of a break right or an extension of the lease.

In addition to the position relating to rent, the Code also advises that in relation to service charge the same should be reduced where the lack of use of premises has reduced the service charge costs incurred (such reduction to be passed on to the tenant as soon as possible), conversely where Covid-19 has increased costs, service charge costs should increase, frequency of service charge payment should be spread (i.e. quarterly to monthly) and any solution reached in relation to service charge should take account of the RICS Professional Statement Service Charges in Commercial Property (1st Edition) and all of RICS guidance in relation to service charges and COVID-19)

However whilst the Code can be utilised by both landlords and tenants to engage the other party in rent and service charge discussions neither party is under an obligation to comply with nor implement the Code.

As previously advised, any concessions to be entered into should be carefully drafted with consideration of the impact on the other terms of the lease. Please contact us if you require assistance with any rent concessions or issues relating to non payment of rent or other sums due.

Please see below links to the items referenced above:

Government’s Statement on extension of restrictions re rent arrears

New code

UK Finance guidance

RICS