uncertain and challenging times.
code of practice for commercial property relationships
Latest guidance on Commercial Rent Arrears
Darren Millis, Commercial Property Partner looks at the latest guidance set out by the government in terms of commercial rent arrears during the pandemic and the importance of following the code of practice.
The restrictions on the ability of commercial landlords to take enforcement action against commercial tenants who remain in arrears of rent have been extended until the end of 2020.
Forfeiture remains available as an enforcement method where the issue at hand is not non-payment of rent.
The government has also further restricted landlords’ ability to exercise their rights under the Commercial Rent Arrears Recovery (CRAR) procedure. This is known as seizure of goods in lieu of rent.
Economic impact of COVID-19 on tenants
In order to help tenants deal with the economic impact of the Coronavirus pandemic, the government has continued to increase the threshold amount of arrears that must be due in order for a landlord to exercise its rights under the CRAR procedure. The latest extension means that in order for landlords to exercise rights under CRAR, 276 days of principal rent will need to be outstanding where the notice of enforcement is given on or before 24th December 2020, rising to 366 days of principal rent for notices from 25 December 2020 (being the equivalent of just over three and four quarters’ rent, respectively).
It is likely the current restrictions on statutory demands will be extended otherwise there will be a large number of statutory demands served.
Commercial landlords will be worried that some tenants, who are able to pay their rent, will abuse this.
The government has again encouraged landlords and tenants to co-operate and, where possible, comply with the (voluntary) Code of Practice announced earlier this year.
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On 19 June 2020, the Government published The Code of Practice for Commercial Property Relationships During the Covid-19 Pandemic
The Code is strictly voluntary. The Code will apply until 24 June 2021. It is clear that the government are not anticipating an early exit from this emergency !
The Code acknowledges that legally tenants are liable for covenants and payment obligations under leases, unless this is renegotiated by agreement with landlords. Tenants who are in a position to pay in full are encouraged to do so. However, tenants who are unable to pay in full should seek agreement from landlords to pay what they can. Both parties should act in good faith, reasonably and flexibly.
The Code also considers service charge arrangements.
The Code states that it applies to all commercial leases held by businesses that have been seriously negatively impacted by the COVID-19 crisis, although it is expected that the hospitality, leisure and parts of the retail sectors will need it most. It notes that businesses within the agricultural sector may also want to consider the Code principles, while acknowledging the differing legal framework for agricultural tenancies.
This is important guidance but is not binding. The guidance does not bring an end to the frustrations of either landlords or tenants.
The Commercial Property Team
David Barton Consultant
Commercial Property 01908 689395David Barton joined Geoffrey Leaver Solicitors in 2014 along with his planning and property development team from Williams & Company in Ampthill. David is widely known for his expertise in helping farmers, landowners and property developers grow houses on their land. David now assists the team as a Consultant.
Emma Sidney Licensed Conveyancer
Residential Property 01908 689351A graduate of Northampton University, Emma qualified as a Licensed Conveyancer in 2005. She joined Geoffrey Leaver Solicitors three years later and deals with the lease, sale and purchase of commercial property and residential, as well as representing several national charity organisations.
Georgina Page Chartered Legal Executive
Commercial Property 01908 689361Georgina joined Geoffrey Leaver Solicitors in October 2014 from Williams & Company in Ampthill. Georgina completed the Legal Practice Course at Sheffield University after graduating from Sheffield Hallam University with a 2:1 in Law (LLB) and qualified as a Fellow of the Chartered Institute of Legal Executives in 2020.