A seat at the table for the Code of Conduct to work

After five months of dealing with lockdown conditions, our members find themselves at the critical halfway point between the launch of the Code of Practice for the Commercial Property Sector in June and when the Moratorium on Forfeitures and associated measures for commercial tenants will come to an end. The survival of so many businesses under intense stress hangs in the balance as the efficacy of the code is revealed in the coming weeks.

The Guild has welcomed these measures from Government which recognises the devastating disruption for all businesses but particularly small and micro businesses – the beating heart of our towns and cities.

We applaud the landlords who made compromises before the Code of Practice was published. We also recognise the instrumental work of leaders from Guardians of the Arches in successfully negotiating with their two main landlords Transport for London and The Arch Co. The 100% rental discount for the first three months and the further 50% discount from both these landlords has ensured that GOTA members have the best chance possible to adapt and inject the local economy with desperately needed wages for recovery not only of their own businesses but for the wider economic ecosystem.

Much smaller landlords have made the same concessions also ahead of the code. Trinity Buoy Wharf is one such landlord with only 100 units. And according to our members, even those with a single business tenant have been willing to make pragmatic decisions to keep tenants who prior to the pandemic never missed a rent payment.

These landlords have made short-term sacrifices understanding the business sense in the long-term. Rent reductions now maintains occupancy while businesses recover, adapt and are then able to pay rent in the future, as opposed to hard to fill empty units where companies are forced to leave because they have not been offered reductions. This is a pattern we can see already emerging. Our members now think twice about taking on rent costs where they might operate in different ways or in different premises now being made available through unlikely large landlords such as Canary Wharf PLC who are now coming to the Guild offering our members rent-free incentives and favourable lease terms.

Some local councils have followed the example set by Transport for London – including Islington, Waltham Forest and Lambeth. While others protective of their income for services have favoured a deferral by default policy which means that those tenants most severely affected by COVID-19 and therefore with least resource and capacity to fight for what they need are asked to double up their labour and prove that they are worthy of reductions. This points to the need for more Councils to have a much better understanding of and relationship with their local business network.

We have seen both public and private sector landlords suggest that tenants who have received government grants should use it to pay rent. We firmly believe that tenants should use this money for wages and other costs critical to the function and survival of their own businesses and in turn the wider supply chain network that props up the property sector. COVID -19 has increased costs due to vital safety measures that businesses have implemented, it must not be assumed that grants and loans are most efficiently used to pay rent especially if landlords want this income returning regularly further down the line.

As a Guild we have been following the principles of the Code of Conduct for years, well before the COVID-19 pandemic compelled the government to create it. Specifically, principle 14 which espouses transparency and collaboration. Back in 2018, our newly launched Affordable Workspace Manifesto pronounced somewhat presciently;

“We need to futureproof our local economy by coproducing developments, regeneration projects and the policies of large landlords together with community-based small businesses. In this time of austerity, we must bring unlikely and diverse stakeholders together to find common ground and tackle the workspace crisis now, before it is too late.”

By building collective power to create a seat at the table between our members and their landlords and decision-makers more broadly, we have broken out of silos and enabled a dialogue that opens up new discoveries and opportunities often sharing new information between each party that was not previously known or fully understood.

This was true in 2013 when Rushanara Ali brought developers Hammerson and Ballymore to the table at Westminster. When Sadiq Khan came for breakfast at E. Pellicci in 2016. When both the Mayors of Hackney and Tower Hamlets backed the principles of our affordable workspace manifesto in 2018, when in May Rajesh Agrawal Deputy Mayor of London for business declared our members his eyes and ears and just last month when the leader of Waltham Forest Cllr Clare Coghill listened to the common themes to arise from our latest listening actions during the pandemic and committed to meet with us every quarter.

In a recent tweet from Rajesh Agrawal, he said, “The best way to empower a community is to give them a seat at the table, not hollow words or tokenism”. We couldn’t agree more.

In the context of small and micro businesses, this isn’t just about empowering communities, a seat at the table is about survival, for small businesses and landlords alike. It’s about starting a long-term constructive dialogue with those who are normally removed and distant from the tenants that keep the economic show on the road.

The new landscape offers us an opportunity for innovation. The tide is turning and those landlords who keep up by coming to the table to open up dialogue directly with their tenants will be best placed to collaborate and become pioneers of a new sustainable and democratic economy.

Key points of the Code of Conduct:

The purpose of the code is “to encourage commercial tenants and landlords to work together to protect viable businesses” by negotiating “affordable rental agreements”

It does not uphold landlords’ profits at any cost. “Affordable” means what tenants can pay and sustain their business rather than what landlords want.

A number of possible “rent plans” are outlined. These include:

a full or partial rent-free period for a set number of payment periods
a deferral of the whole or part of the rent for one or more payment periods
the payment of the rents over shorter payment periods for a set time (e.g. monthly rather than quarterly) including provision for their payment in arrears
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, incorporating any period during which the site was closed
landlords drawing from rent deposits on the understanding that the landlord will not then require that the deposits be “topped up” by the tenant before it is realistic and reasonable to do so
reductions in rent, either in whole or part, across other units occupied by the tenant and owned by the landlord, as part of a negotiated agreement applying to a portfolio of units
landlords waiving contractual default interest on unpaid rents or rents paid in arrears to make payment plans more affordable
provisions for ending the solutions on a fixed date, or on reaching the trigger point of particular circumstances
tenants and landlords agreeing to split the cost of the rent for the unoccupied period between them
any of the above in return for other arrangements e.g. a reversionary lease on reasonable terms, the removal of a break right in favour of the tenant, or an extension of the lease

In negotiating a rent plan “transparency and collaboration are key principles… tenants seeking concessions should be clear with landlords about why this is needed…. Landlords should provide concessions where they reasonably can …and landlords seeking to refuse concessions should be clear with their tenants about why they are doing so.”

Some other points worth noting:

Code is “Voluntary in nature and is relevant for all commercial leases” and does not change legal status but applies to everyone.

“landlords and tenants must work together collaboratively, and many will want to find temporary, and where possible sustainable, arrangements outside of the existing letter of their leases in order to create a shared recovery plan”

Landlords cannot just hide behind the legal status of existing agreements – they are expected to negotiate. It should be noted that voluntary codes of practice are often followed by legislation if the desired effect is not achieved – think of smoking bans or seat belt rules.

Tenants should “continue to pay their rent in full if they are in a position to do so” you do not have to pay if doing so threatens the viability of your business or would mean you have to choose between paying employees and rent

Landlords “should provide support to businesses if they are able to do so”

Government financial support to business is intended to help “meet the costs of maintaining their business and saving jobs. We recognise rent is one of these costs”

Rent is not ranked above other business costs in terms of importance. Saving jobs is the most important outcome of government financial aid.

“Both parties should take into account the impact of any changes to the long-term viability of their businesses”

Landlords will not have a viable business if they cannot negotiate a fair and transparent rent with tenants. Tenants will move to those that can.