Stopping business evictions – again

When the coronavirus pandemic forced the government to take action back in March, one of the regulatory changes put in place was a ban on landlords seeking evictions of non-paying commercial tenants, writes Adam Bernstein.

That regime was set to expire on 30 June, but, mercifully, the government extended it until the end of September.

Along with the extension, the government has launched a new code of practice to provide support to shops and local firms planning their recovery with their landlord. Very simply put, the government has extended measures that prevent struggling companies from eviction over the summer. Effectively, no business will be forced out of their premises if they a miss a payment in the next three months. The change was brought into force via a statutory instrument to amend the Coronavirus Act.

New code of practice

The new code of practice, entitled Code of practice for the commercial property sector, (which can be read on gov.uk) is voluntary and applies to all commercial leases held by businesses in any sector that have been impacted by the coronavirus pandemic. The code seeks to encourage tenants to continue paying their rent in full if they are in a position to do so but advises others to pay what they can. It suggests that landlords should provide support to businesses where they are able to do so.

Fundamentally, the code asks tenants and landlords to be transparent as they debate the issues and that they ‘should act reasonably and responsibly’ and recognise the effect that coronavirus has had on businesses’ finances.

From the government’s point of view, the code “represents best practice within the sector for responding to coronavirus and is endorsed by the leading representative bodies who formed the code’s steering group.” Members include the British Chambers of Commerce, British Property Federation, British Retail Consortium, Commercial Real Estate Finance Council Europe, Revo, and the Royal Institution for Chartered Surveyors.

It should also be noted that a number of other organisations have endorsed the code, including the Agricultural Law Association, British Independent Retailers Association, Central Association of Agricultural Valuers, Country Land Association, Federation of Small Businesses, Property Owners Forum, Scottish Property Federation, Tenant Farmers Association and Tenant Farmers Association Cymru and UKActive.

But on top of the temporary ban on evictions, the government has said that it will also bring in secondary legislation “to prevent landlords using Commercial Rent Arrears Recovery unless they are owed 189 days of unpaid rent.” This too will be in force until 30 September.

Further good news and relief for firms in a spot of bother comes via an amendment to the Corporate Insolvency and Governance Act. This extends a temporary ban until 30 September on the use of statutory demands and winding-up petitions where a company cannot pay its bills due to coronavirus.

Key points

Tenants seeking concessions – think reductions or time to pay – are advised to be clear with their landlords about why it is needed. This, by definition, will mean being open and explaining the request with financial information about the health of the business. Landlords are entitled to protect their position and so where they refuse concessions must be clear why they are doing so. Clearly not sharing commercially sensitive information isn’t going to help either side’s case.

Factors that the government has outlined include the closure period that impacted the tenant’s business and its ability to trade via other means; the effect of social distancing on trading; the extra costs and obligations as tenants protect customers via social distancing measures; the needs of other stakeholders such as banks, employees, suppliers during this period; the government support that has been received and how it has been used; and the tenant’s previous track record under its lease terms and any concessions to the tenant already agreed.

As the code outlines, agreeing ‘new terms’ will remove the right of a landlord to seek an eviction.

Options for relief that could be considered include a full or partial rent-free period for a set number of payment periods; deferral of the whole or part of the rent for one or more payment periods; the payment of the rents over shorter payment periods for a set time; reducing payments to a current market rate and/or to provide for all or part of the rent to be paid as a proportion of turnover of the site, incorporating any period during which the site was closed; landlords drawing from rent deposits on the understanding that the landlord will not then require that the deposits be ‘topped up’ by the tenant too soon; landlords waiving contractual default interest on unpaid rents or rents paid in arrears; and tenants and landlords agreeing to split the cost of the rent for the unoccupied period between them.

In summary

The code of practice makes great play on tenants communicating with their landlord. Part of this will require openness and honesty about the realities of business, post coronavirus, for both parties. Taking unilateral action should be avoided for in the long run it will only end up leading to one thing – court action and eviction.

Content extracted from https://www.boatingbusiness.com/news101/comment/business-matters/stopping-business-evictions-again