22 June 2020

A much anticipated 'Code of Practice for commercial property relationships during the COVID-19 pandemic' was published at the end of last week by the government, just in time to meet the next quarter day on 24 June. The Code sets out best practice guidelines for landlords and tenants in relation to treatment of rent and service charge arrears and new sums falling due as the economy begins to restart and throughout the subsequent recovery period. The Code applies across the UK and to all commercial property sectors, from offices, retail and industrial through to hospitality, leisure, ports and even the agricultural sector (albeit with an acknowledgment that a different legal framework is in play for agricultural tenancies).

The key takeaways are:

  • the Code is not a statutory instrument or legally binding but it is endorsed by a number of leading organisations and representative bodies within the sector, including the British Chamber of Commerce, the British Property Federation and the British Retail Consortium, all of whom have been instrumental in its launch;
  • the Code makes clear that tenants who are in a position to pay in full should do so. Tenants who are unable to pay in full should seek agreement with their landlord to pay what they can;
  • both landlords and tenants are called upon to act reasonably, work together collaboratively, use all available government resources and to renegotiate rent where applicable in order to find mutual solutions to COVID-19 shocks;
  • a variety of potential options are set out which the Code encourages parties to consider in respect of rent arrears and future payments. Landlords should be prepared to make concessions on rent payments where they can and to provide clear reasoning for the refusal of concessions;
  • where landlords are being asked to agree to concessions, the Code suggests that tenants should be prepared to provide evidence to support and justify any requests and also to make reasonable concessions of their own (for instance, offering reversionary leases or extended terms in return for rent deferment);
  • service charges should be reduced where lack of use of a property during the lockdown period has lowered the costs incurred by the landlord;
  • any reduction in service charge is to be passed on to tenants as soon as possible, notably ahead of the conventional year end reconciliation, in order to improve cash flow;
  • the Code recognises that additional service charge costs may be incurred in complying with COVID-19 health and safety requirements. These costs should be taken into account when calculating any service charge reductions.

In summary, the government is encouraging landlords and tenants to be as collaborative and flexible as possible in their approaches to mitigating the financial impacts of the COVID-19 pandemic. There is a clear message here for landlords, tenants and funders – 'you are all in the same boat'.

The Code is to apply until 24 June 2021 but with the June quarter day upon us and many predicting an even sharper drop in rent and service charge receipts than was seen in March, its impact will become clear in the next few weeks. Previous industry Codes – the RICS Service Charge Code and the 2007 Code for Leasing Business Premises as notable examples – have been launched with fanfare but with little lasting effect, particularly outside the institutional universe. Yet these are very different times which may prompt a very different response. Landlords and tenants must tread carefully however – the Code is addressing behaviours, it is not imposing solutions and there are many traps in which to fall when seeking to secure and document a legally binding arrangement.

If you have any questions in relation to the government’s Code of Practice for Commercial Property Relationships or its application to your particular circumstances please contact Richard Clark, head of our Real Estate Sector Group or James Sutherland, head of our Real Estates Disputes team.

Our COVID-19 Support Hub also includes a collection of helpful resources in relation to a wide range of issues affecting the real estate industry.

Key contact

Richard Clark partner

Richard Clark Partner

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