1st October 2020
Government encourages landlords to show businesses forbearance
The Tánaiste and Minister for Enterprise, Trade and Employment, Leo Varadkar TD, alongside the Minister of State for Business, Employment and Retail, Damien English TD, and Minister for Housing, Local Government and Heritage, Darragh O’Brien TD, have today published a new voluntary Code of Conduct that has been agreed between landlords and business representatives for commercial renters.
The Code, which is a commitment in the Programme for Government, has been developed in consultation with all relevant stakeholders, including IBEC, Retail Excellence Ireland, Chambers Ireland 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 UK.
The Tánaiste said,
I understand this is a difficult time for many, especially those businesses heavily impacted by the crisis who are facing an uncertain future. I know that some firms are concerned about how they are going to continue to pay the rent due for their business premises. Throughout this crisis, the Government has been encouraging commercial tenants and landlords to engage with each other and have asked landlords to show forbearance in these extraordinary times. Ultimately, it’s in the best interest of both parties to come to a reasonable arrangement.
Nobody wants to see vacant premises in our towns and villages or our shopping centres. Landlords should be willing to do what they can to help their tenants to continue to operate rather than facing the risk of a vacant premises and inability to obtain new tenants. Equally, tenants should pay what they can and speak with their landlord when difficulties arise. The Code sets out how both parties can work together to get through these uncertain times.”
The Code, which will apply until 31 July 2021, sets out a structured approach for engagement between both commercial landlords and tenants, based on their mutual interest in continuing to work together.
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.
Minister of State for Business, Employment and Retail, Damien English TD, added:
This is a complex issue and there was broad understanding among stakeholders on all sides that Government could not intervene in the market in a heavy-handed way, but we are conscious some steps needed to be taken to address the impact COVID-19 has had on commercial rents and leases. This voluntary Code of Conduct sets out best practice and will help facilitate conversations between commercial landlords and tenants. It is a common-sense approach to tackling an issue facing many businesses across the country.”
Minister for Housing, Local Government and Heritage, Darragh O’Brien TD, said:
The Code, in addition to six- month commercial rates waiver and business supports already available, will provide some practical assistance to commercial tenants and landlords. Firms can also avail of additional business supports such as the enhanced Restart Grant, the new Credit Guarantee Scheme and MicroFinance Ireland Loans where they are experiencing financial difficulties.”
Notes to Editor
The Code of Conduct between landlords and tenants for commercial rents, which will apply until 31 July 2021, is broken down into four sections: Purpose & Context, Overarching Principles, Negotiating Arrangements, and Service and Insurance Charges.
Purpose and context
The Purpose and Context section sets out the voluntary nature of the Code and sets the Code in the current landscape of COVID-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.
The Code of Conduct between landlords and tenants for commercial rents can be found here: Code of Conduct between Landlords and Tenants for Commercial Rents
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