The Government recently published a Code of Conduct between Landlords and Tenants for Commercial Rents (the Code). Its purpose is to promote good practice and dealings between landlords and tenants as they navigate the economic fallout of the COVID-19 pandemic.
Background
The pandemic and subsequent Government restrictions resulted in the temporary cessation of many business activities and the closing of premises. This has caused cashflow problems and liquidity issues as businesses still must meet fixed costs and other overheads. This may result in insolvent tenants and landlords struggling to subsequently let property in a depressed market.
The Code recognises the common interest of the landlord and tenant working together to achieve a mutually satisfactory solution. The Code remains in place until July 2021.
Key points
- The Code sets out several overarching principles which should form the basis of the relationship between the landlord and tenant. These principles are reasonableness, transparency and good faith.
- Negotiating arrangements are considered and the Code highlights several factors a landlord may wish to consider if a tenant is unable to pay his rent. Some of these factors include, the closure period impacting the tenant's business, the duration and extent of the restricted trading, extra obligations and costs incurred to protect employees and the ability to absorb losses.
- The Code sets out options that could be agreed by both parties. Options include
- a full or partial rent free period;
- a deferral of the whole or part of the rent for a certain number of payments;
- extending the term of the lease to cover the period of the closure.
- The Code also contains a section on service and insurance charges acknowledging that it is important that buildings continue to be insured and safely maintained so that they are ready to assist the economy's recovery in the aftermath of COVID-19.
The Code is non – binding and doesn’t alter the commercial relationship or the terms of the lease between the parties. What it does is promote key principles of good faith, transparency and honesty in dealings with each other. It encourages the parties to engage with each other at the earliest opportunity so parties can try and avoid deteriorating commercial outcomes.
A recent case
The Code was relied upon by a plaintiff tenant recently in the case of Hafeez v CPM Consulting Limited [2020] IEHC 536 where the plaintiff tenant sought an injunction against the landlord for possession. The plaintiff relied heavily on the recently published Code to corroborate his argument that he had a strong case for an order granting him relief against forfeiture. He claimed that in weighing the equities on his application the court is entitled to consider as one of the factors in the balance, the extent to which each of the parties has or has not acted in compliance with the Code. The Court noted that Mr Hafeez's emphasis on the importance of the Code was predicated on what he contends was the incontrovertible position that the Code applies and that as a tenant he has complied with it whereas the landlord hasn’t. The Court said that that proposition whether true or false is far from self-evident. The Court found that the claimant hadn’t made out a strong case and refused the relief.
Conclusion - takeaway
It is likely that the Code and its principles will be considered in future property disputes before the courts in 2021 as the economic impact of COVID continues to bite. Landlords and tenants should be familiar with the core principles it advocates to avoid situations where the court's deliberations are influenced by whether or not the parties considered the Code.
For more information please contact Sinead Grace, Pauline Louth or your usual contact in Beauchamps.
Code of Conduct between Landlords and Tenants for Commercial Rents
