Code of Practice for commercial property relationships during the COVID-19 Pandemic

On 15 June 2020, we considered the potential impact of the Code of Practice for commercial property relationships  during the coronavirus pandemic which was then published on 19 June 2020 (“the Code”). A copy of the Code can be found here.

We were not aware at that time what position the Scottish Government would take in relation to the Code and the risks posed to Scottish tenants by the availability of Summary Diligence. The position is now a little clearer.

On 1 July 2020, the Scottish Government Minister for Public Finance and Migration published an open letter in which they said:

“…the Scottish Government and the UK Government strongly urge landlords and tenants to utilise this Code, and for lenders to provide support as pro-actively as possible to enable tenancies to endure that were viable before the crisis took hold, in order to sustain jobs and maintain productive capacity.

The Code’s objective for the commercial property sector during this period is simple: to provide the right support to those in the chain of commercial property payments – from customers to tenant businesses, commercial landlords and lenders – so that our economy can swiftly and sustainably recover. It will support businesses to come together to negotiate, and if necessary re-negotiate, affordable rental agreements in these unprecedented circumstances….

Taken together with the anti-irritancy measures, the Code will help provide the breathing space for tenants to work with landlords and other partners on a plan for a sustainable future……both the Scottish Government and the UK Government will continue to monitor the economy to determine whether further intervention is necessary….”

In summary:

1. the Scottish Government fully supports the Code and strongly encourages its use; but
2. notwithstanding the Code, Summary Diligence remains an option for landlords in seeking to recover rent, insurance and service charge arrears.

It remains to be seen what the approach of the courts will be should a tenant seek to apply to suspend diligence citing the Code as justification.

Comment

The Code does not change the underlying contractual relationships as between a landlord and tenant and any guarantor. Mutually beneficial agreements are encouraged. The emphasis appears to be on businesses that were viable pre COVID-19 and collaboration.

As we ease out of lockdown, we are beginning to see a number of landlord / tenant arrears discussions nearing the point of a dispute.

For landlords - it is worth keeping an eye on the Code in your discussions with tenants to ensure that there is “reasonable and constructive dialogue” with what were viable businesses, bearing in mind that one day, you may need to evidence that you were reasonable; and

For tenants – failure to pay anything is unlikely promote “reasonable and constructive dialogue”. Arrears/poor payment history from pre-March 2020 will likely impact what is considered reasonable by the landlord. In demonstrating viability pre-COVID–19 you may have to be prepared to be transparent. It is worth remembering the emphasis on mutually beneficial agreements – ie concessions may have to be given in exchange.

It is worth also bearing in mind that the restrictions on winding up (liquidation) brought about by the Corporate Insolvency and Governance Act 2020 come to an end on 30 September 2020 and therefore, unless the UK Government takes steps to extend the restrictions on winding up, the risks for some tenants are only going to increase.

Please get in touch with Steve Guild or Julie Greig should you require further advice on recovery of arrears/enforcement action and/or any ongoing negotiation.