Code of Practice – update

The Code of Practice for landlords and tenants, introduced last summer in response to the pandemic, has been updated earlier this month with a new annexe.

The Code is intended to sit alongside the other measures introduced and to “promote good practice amongst landlord and tenant relationships as they deal with income shocks caused by the pandemic”. Those measures are currently due to come to an end in June 2021 subject to the response to the Government’s recent call of evidence leaving a huge build up of rent arrears in its wake.

The update to the Code introduces a template to assist landlords and tenants in any negotiations in relation to rent arrears and on-going lease terms. The template is intended to provide a platform to enable a greater sharing of information so that landlords are able to “provide support to a tenant where reasonably possible, whilst having regard to their own financial commitments”. The template tries to drive consistency and uniformity of approach across the board and encourages the sharing of financial and trading information in order to inform discussions. We are yet to see any real impact in relation to the template but have seen the Code being used, with varying degrees of success, by tenants to push landlords to negotiate, and by landlords to encourage information provision.

The Code has recently been considered in Court in the cases of Commerz Real Investmentgesellschaft mbH and TFS Stores Limited and Bank of New York Mellon (International) Limited and AEW UK Reit PLC with the tenant seeking to rely on it as a defence to payment of arrears of rent. The Court was not persuaded in either case that the Code was intended to further fetter a landlord’s right to recover rent beyond the measures implemented by the Government, nor (whilst there was in fact no evidence to that effect) that failure to have adhered to the Code should prevent the landlord from taking action to recover arrears. Whilst the decisions focused on these arguments at summary judgment stage it will make it more difficult for tenants to run them at trial.

The update to the Code makes it clear that it is intended to assist the parties to reach a negotiated settlement without recourse to the Court. The update contains clear guidance that Court action should be a last resort providing links to the civil procedure rules and general pre-action protocol. As such it remains to be seen whether failure to adhere to the Code at all will result in any sanction, most likely on costs, if a landlord were to push ahead with recovery without even a nod to the best practice envisaged by the Code. Our view is that both landlords and tenants would be well advised to give consideration to following the spirit if not the letter of the Code.