The Department of Enterprise, Trade and Innovation published a Code of Conduct between Landlords and Tenants for Commercial Rents on 1st October 2020 (the “Code”), (full text available here), which has been developed in consultation with stakeholders such as IBEC, Retail Excellence Ireland, Chambers Ireland and Irish Institutional Property with a view to providing practical assistance to commercial landlords and tenants who have been negatively impacted by the COVID-19 crisis.
The Code, is similar to the Code of Practice for Landlords and Tenants published in the UK in June 2020, in that it sets out a number of principles of engagement that both a landlord and a tenant should consider when re-negotiating the terms of a commercial tenancy. Similarly to the UK, the Code does not impose any statutory obligations and is part of a variety of measures introduced by the Government to assist businesses during the current pandemic such as the wage subsidy scheme.
It is important to note that this is a voluntary code and does not change the underlying law or legal relationship between a Landlord and Tenant. The Irish Government restates its position that it cannot interfere in the private contractual relationship between the parties. The Code notes that any changes to agreements must be agreed between the respective parties in accordance with the terms and conditions of any existing lease or contract.
Main Principles
- to facilitate and encourage discussions and negotiations between landlords and tenants in working together to enable businesses to keep operating;
- the parties should act reasonably, in good faith and in an open, honest and transparent manner;
- tenants who are in a position to pay their rent and service charges should continue to do so;
- tenants who are in financial difficulty should seek a concessionary arrangement with the landlord to pay what they can considering the principles of the Code;
- if a tenant is seeking a rent concession they need to be clear with the landlord why this is needed and provide financial information to the landlord in relation to their business;
- landlords should provide concessions where they reasonably can however the Code recognises that certain landlords will have financial obligations for which they rely on rent being paid and this may limit the forbearance they can provide to a tenant in these circumstances.
- The Code however does encourage landlords and tenants to engage with their lenders and finance providers to seek some flexibility in relation to their financial arrangements if required;
- landlords seeking to refuse concessions should be clear in their reasoning for doing so and provide a reasonable explanation to the tenant for such refusal;
- The Code sets out a non-exhaustive list of options to assist landlords and tenants in reaching an agreement such as, rent free periods, rent reductions or deferrals and waiving interest payments on unpaid rent; and
- The Code promotes alternative dispute mechanisms under a lease and third party mediation in circumstances where an agreement cannot reached, on the basis that each party pay their own costs and do not prolong or frustrate the facilitation of an amicable resolution.
Service Charges & Insurance
It is crucial, from both a landlord’s and tenant’s perspective that a commercial premises remains insured and safely maintained during the pandemic so that they are ready to assist in the economy’s recovery once restrictions have eased. The Code recognises that the service charge and insurance payments due under a lease are not profit-making (unless otherwise agreed) and need to be paid in full in the majority of cases.
The Code sets out options for consideration as to how landlords could ensure that service charge costs are reduced, such as, the frequency of payments being spread over shorter periods and any reduction in statutory charges or insurance being passed to the tenant proportionately under the terms of the Lease.
This may not always be practicable in certain circumstances and the Code acknowledges that in some cases additional service charge costs may be incurred, for example, in order to operate a building in compliance with the health and safety guidelines in the context of COVID-19.
Conclusion
As mentioned, the Code is not binding and has no statutory basis. However, it is generally welcomed and represents a good starting point for initiating negotiations between a Landlord and Tenant during the current economic climate. As many businesses have already come to new arrangements with their Landlord to safeguard their business, the publication of the Code does not change those agreements.
In such circumstances where a concessionary agreement has been reached, it is important that the lease and documentation giving effect to the concession is reviewed thoroughly by your legal advisor before agreeing to any such concession and that any amendments to the terms of the original lease are documented by a deed of variation or side letter, drafted by your legal advisor. Another point to consider is the parties position on whether any temporary or other concession is to impact any future rent review. The consent of a lender or evidence of it not being required, should be provided, if required.
The Code will remain in place until 31 July 2021, however the Department of Business, Enterprise and Innovation will keep the Code under review, and before the Code expires, will determine if there is a need for it to be extended or replaced.
Practical Effect
In the meantime, it will be important for Landlords and Tenants to remain mindful of the guidance set out in the Code of Conduct. While the Code is voluntary, it is likely to be given weight by the Courts as a benchmark for the standards to be maintained in Landlord and Tenant relationships during this time and perhaps into the future.
It is possible that where an issue is brought before the Courts and a party cannot demonstrate good reason why the Code of Conduct was not followed, the Courts may penalise that party by way of a negative costs order. This is particularly relevant in circumstances where the Code recommends that parties explore alternative dispute resolution mechanisms where possible, which could avoid the need for parties to incur the time and cost of court proceedings.
The Real Estate and Commercial Litigation teams in DAC Beachcroft Dublin will be monitoring developments in this area. If you have any questions, please contact any of our team.
