19 Jun 2020

Struggling businesses 'could use deposits to pay rent'

Struggling businesses 'could use deposits to pay rent'

Struggling businesses could be allowed to use their deposits to pay rent, according to a new code of practice designed to help firms through the Coronavirus crisis.

The UK government has extended temporary measures to prevent companies from eviction until September.

The announcement was accompanied by a new code of practice developed with leaders from the retail, hospitality and property sectors to provide clarity for businesses when discussing rental payments and to encourage best practice so that all parties are supported.

The Code

The Code is voluntary for businesses and is relevant to all commercial leases held by businesses in any sector which have been impacted by the coronavirus pandemic.

It encourages tenants to continue to pay their rent in full if they are in a position to do so and advises that others should pay what they can, whilst acknowledging that landlords should provide support to businesses if they too are able to do so.

It suggests steps that landlords and tenants could agree. Many of these are set out in our earlier article accessed here.

 In addition, the Code suggests: 

  • Landlords drawing from tenant’s rent deposits on the understanding that the landlord will not then require that the deposits be ‘topped up’ by the tenant before it is realistic and reasonable to do so;  and
  • Where landlords and tenants have followed these principles but have been unable to reach a specific agreement, parties mutually agreeing to engage a mediator to help facilitate negotiations.

Click here to read the code of practice in full.

Euan McSherry, Aberdein Considine’s Head of Dispute Resolution, comments: “The May Quarter Day in Scotland has resulted in many commercial landlords and tenants commence, and some conclude, the negotiations promoted by the Code.

"There are disputes, however. The Code carries not just the weight of Government support but also that of key stakeholders in the commercial property market such as the British Chambers of Commerce, the British Retail Consortium, the RICS and the Scottish Property Federation.

"The principles and suggested arrangements may assist to break down obstacles to resolutions for parties with disputes. It is encouraging that mediation is promoted as a means of conflict resolution.”

Relief

The suspension of the forfeiture of evictions (irritancy under Scots law) will come as a relief in particular to pubs, cafes and restaurants, after the hospitality sector called upon the government for action in this area.

Communities Secretary, Robert Jenrick MP said: "As our high streets come to life and our town centres open for business, it is crucial that both landlords and tenants have clarity and reassurance as they seek to keep their finances stable and bounce back.

"That is why we are extending measures to protect those who are unable to pay rent from eviction so that businesses have the security they need to plan for their futures.

"And in recognition of the strain that the virus has had on our high streets, our new code, backed by leaders across the industry, will help unlock conversations on rent and future payments whilst ensuring best practice is displayed across the board as we confront the challenges of this pandemic."

Help for the commercial sector

The UK government has also confirmed the following changes to the existing package of measures for the commercial sector:

  • A statutory instrument to amend the Coronavirus Act to extend the time period for suspension of the forfeiture of evictions from June 30 to September 30, meaning no business will be forced out of their premises if they a miss a payment in the next three months.
  • Secondary legislation to prevent landlords using Commercial Rent Arrears Recovery unless they are owed 189 days of unpaid rent. The time period for which this measure is in force will be extended from June 30 to September 30.
  • An amendment to the Corporate Insolvency and Governance Bill has been tabled which will extend the temporary ban on the use of statutory demands and winding-up petitions where a company cannot pay its bills due to coronavirus until 30 September.

 UK Finance has also confirmed its members’ continued support for commercial landlord customers including amendments to facilities and capital payment holidays.

Help for businesses

Our Corporate & Business Advisory, Commercial Real Estate, Litigation, Insolvency and Employment Law teams remain fully operational and are helping businesses navigate the current crisis. Click here if you could like to speak to us. 

Euan McSherry has achieved a Royal Institution of Chartered Surveyors (RICS) mediation accreditation and was the first Scottish lawyer to be listed on the Register of RICS Accredited Mediators. If any issues arising out of this article are of interest, please contact Euan at emcsherry@acandco.com  or 07818 097172.

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