The Code for Covid

Our team: Gavin Whitney

Over the past few years, there has been a desire in Government to encourage the property industry to regulate itself under the veiled threat that it would legislate if this was not done.  In response, RICS have introduced a number of different codes and the most recent are the 2007 ‘Code for Leasing Business Premises’ (which applies to lawyers and surveyors in relation to the negotiation of leases and heads of terms) and the 2019 ‘RICS Code of practice, Service charges in commercial property (3rd edition)’ which is aimed at surveyors administering lease service charge regimes)

In response to the Covid-19 pandemic, the Government has introduced its own code: Click here. This is more akin to the 2017 Code for Leasing but is primarily aimed at the landlord and tenant principals themselves, rather than their advisors.  However, it does also touch on service charge considerations and so needs to be considered in the context of the 2019 Code of practice.

The aim of the new code is to encourage cooperation between landlords and tenants and a mutual recognition of the issues facing the property sector as a result of Coronavirus.  It is voluntary, and has no “teeth” to require compliance, but does have a number of influential endorsements (such as the British Property Federation, British Chambers of Commerce and UKHospitality) and other signatories from industry associations which are designed to encourage compliance by the rest of the sector.

The key principles of the code are as follows:

  1. Transparency and Collaboration.
  2. A Unified Approach.
  3. Government Support.
  4. Acting Reasonably and Responsibly.

The overall ethos of the code is: “we are all in this together”, and that includes the landlord, the tenant and the Government.  So, in following the code, parties are encouraged to:

  • act reasonably, swiftly, transparently and in good faith” which would include providing financial information about the business as a means of justifying why a concession might be needed or cannot be granted;
  • acknowledge that they are “economic partners” and the code points out to the landlord some considerations to be borne in mind when considering a tenant request for assistance;
  • help and support each other”;
  • identify mutual solutions where they are most needed” and gives some examples, many of which are mentioned in another of our articles this month; and
  • recognise that they may “have received government COVID-19 related subsidies or reliefs (for example the Job Retention Scheme, loans, grants, business rates relief or VAT deferral)”, thus stressing the wider benefit to society in ensuring businesses remain viable.

There is of course nothing wrong with any of the above, but when solutions come with an economic impact, it is obviously more challenging to adhere to the principles.  The code does recognise that parties may not be able to reach agreement, but hopes that they will at least try and that the principles will assist with the endeavour.

So, in truth, the new code does not really take the commercial property sector much further forward and it is undoubtedly the case that most parties would naturally have followed its principles instinctively anyway and did need not a Government instruction to do so.  However, where a landlord or tenant is faced with an unreasonable counterparty there is certainly a benefit to having some guidance from an independent party which can be cited as a justification for assistance and which might help to change minds and attitudes.

For a commentary on the Code of Practice and rent arrears click here.

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