New Voluntary Code of Conduct Between Landlords and Business Representatives for Commercial Renters.
A new voluntary Code of Conduct that has been agreed between landlords and business representatives for commercial renters.
The code was announced by the Tánaiste and Minister for Enterprise, Trade and Employment, Leo Varadkar T.D., alongside the Minister of State for Business, Employment and Retail, Damien English T.D., and Minister for Housing, Local Government and Heritage, Darragh O’Brien T.D.
The Code, which is a commitment in the Programme for Government, has been developed in consultation with all relevant stakeholders, including representative bodies and Irish Institutional Property (IIP), who manage approximately €14bn of Irish property. It is based on an approach taken in other jurisdictions, including Australia, France and the U.K.
The Code sets out a structured approach for engagement between both commercial landlords and tenants, based on their mutual interest in continuing to work together. It will apply until 31st July 2021.
The Code sets out a number of principles that both parties should commit to abide by, including transparency and collaboration. The Code asks commercial landlords to provide concessions where they can and where this is not possible, asks them to set out clearly the reasons for this. It lists some of the issues to consider when determining the impact of COVID-19 and the public health restrictions on a business and the need for concession. Where a concession is being considered, the Code provides some suggested options for new arrangements. The Code also suggests that commercial tenants seeking new arrangements should be clear as to why assistance is needed when seeking concessions from their landlord.
The Code is broken down into four sections: Purpose & Context, Overarching Principles, Negotiating Arrangements, and Service and Insurance Charges.
Purpose & Context
The Purpose & Context section sets out the voluntary nature of the Code and sets the Code in the current landscape of COVID-19 impacted businesses where firms are experiencing liquidity gaps and debt overhangs. The Code notes the following:
• Landlords and tenants have a common interest in working together to enable businesses to keep operating and that it’s in everyone’s interest that terms are agreed amicably.
• The Code is meant to facilitate discussions between parties to help achieve mutually satisfactory outcomes.
• Tenants who are in a position to pay in full should do so. Tenants who are unable to meet their financial and or contractual commitments should seek agreement with their landlord to pay what they can considering the principles of this Code.
• Landlords should be willing to consider a reasonable case put forward and whether some temporary arrangement might enable the tenant to survive.
• Both parties remain obliged to meet the current terms of the lease unless a renegotiation is achieved and that landlords should provide support where reasonably possible, having regard to their own financial commitments.
The overarching principles in the Code include:
• Transparency and collaboration – Landlords and tenants are economic partners and not opponents. Therefore, in all dealings with each other, in relation to the Code and the COVID-19 crisis, they will act reasonably, swiftly, transparently and in good faith.
• Unified approach - Landlords and tenants will try to help and support each other in their dealings with other stakeholders to achieve outcomes reflecting the Code’s objectives and help manage COVID-19’s economic and social consequences.
• Government support – There is a recognition that Government support has been provided to help businesses meet their commitments and the measures introduced by certain financial institutions for business customers.
• Acting reasonably and responsibly – Landlords and tenants will operate reasonably and responsibly recognising COVID-19’s impact, to identify mutual solutions where they are most needed. Where they cannot reach specific agreement, they may agree to use third party mediation (if the cost is proportionate) to help facilitate negotiations.
The Code suggests that:
• Parties should act in good faith and in an open, honest and transparent manner;
• Tenants seeking new arrangements should provide sufficient and accurate information and be clear as to why assistance is needed; and
• Landlords should provide concessions where they reasonably can, having regard for their own obligations, and, where concessions are refused, they should set out clearly the reasons for this.
It lists some of the issues to consider when determining the impact on a business and the need for concession including:
• The closure period impacting the tenant’s business, and ability to trade via other means; and
• The tenant’s previous track record under its lease terms and any concessions already agreed.
It also provides some suggested options for new arrangements such as:
• Full or partial rent-free period for a set number of payment periods;
• Tenants and landlords agreeing to split the cost of the rent between them; and
• rental variations to reduce ongoing 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 (sliding scale), incorporating any period during which the site was closed.
Services and Insurance Charges
Finally, the Code examines how service and other statutory charges incurred by the landlord or management company can be met.
Further information on the Code can be assessed here.