The Department of Business, Enterprise and Employment, currently headed up by the Tánaiste and Leader of Fine Gael, Leo Varadkar, TD, has introduced the Code of Conduct between Landlords and Tenants for Commercial Rents (the "Code"). It is one of the latest measures introduced by the government in order to help companies which have seen a significant impact on their business as result of COVID-19.
The Code is voluntary and applies to all commercial tenancies that have been seriously and negatively impacted by the COVID-19. It relies on both Landlords and Tenants coming together to amicably agree terms in order to allow businesses to continue to operate through the period of economic recovery. The Code will continue to operate until 31 July 2021.
A summary of the principles introduced by the Code
- Landlords and Tenants are asked to act in good faith and in a manner which is reasonable, flexible and transparent. It suggests that Tenants be clear on what their specific needs are and financial information be given to the Landlord to assist the Landlord in assessing the situation;
- It is suggested that Landlords and Tenants endeavour to assist each other in dealings with third parties i.e. government, banks, utility companies;
- Where Government COVID-19 assistance has been received by either the Landlord or the Tenant this should be recognised for what it is, a payment to assist the business and the benefit should be used for this purpose. For instance a deferral on the mortgage repayments received by the Landlord from their lending institution should be passed on to the Tenant in a similar manner;
- Tenants are being asked to continue to pay their rent and service charges as per the terms of their Lease if they are in a position to do this;
- If Landlords are not in a position to meet the requirement and terms asked for by the Tenant, then the Landlord should set out the reasons why they are not in a position to meet the terms;
- In instances where negotiations have not resulted in agreement between the parties, the Code proposes the use of the alternative dispute resolution mechanism or a third-party mediator on the basis that both parties are to bear their own costs proportionately;
- There are a number of considerations offered as suggestions that Landlords might refer to in assessing the impact that COVID-19 has had and may be having on the Tenant's business. These include periods of closure of the Tenant's business, restrictions on trade as a result of social distancing, additional costs and obligations in protecting employees, other stakeholders that are involved, government assistance received and the Tenant's previous history;
- It also makes a number of possible suggestions that could be offered by the Landlord to the Tenant which includes a rent free period, a deferral of rent for a period, the payment of rent monthly rather than quarterly, a rent reduction, using a deposit for the payment of rent to be topped up at a later viable time, a waiver of interest on unpaid rent, splitting the rent between the Landlord and Tenant for unoccupied periods, extending the term of the lease to cover any closure periods.
The Code also highlights the importance of the continued payment of the service charge and insurance charge, reasoning that it is a not for profit-making charge to ensure the building continues to be insured as well as safely maintained. It does make suggestions, that in some instances, there could be a reduction in the service charge where the service charge costs have reduced as a result of a building not being occupied. While on the other hand, it recognises there may be additional costs associated with safety requirements necessitated as a result of COVID-19.
While the Code is voluntary and not legally binding the recent headlines, H&M closing 170 of its stores worldwide and Google pulling out of its plan to lease 202,000 square feet of office space in Dublin's Docklands, highlight the necessity of both sides needing to embrace the Code and to "endeavour" to act in a manner that is "reasonable" and in "good faith". Early engagement is necessary by both Landlord and Tenant, so parties can adapt quickly to this changing economic landscape where online sales are the new go to for customers and employers are recognising the economic advantages of employees working from home.
Originally published by BHSM, October 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.