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Are we about to receive a new Code for leasing business premises?

27/03/2018

Many landlords and agents will be familiar with the guidelines set out in the 2007 Code for Leasing Business Premises in England and Wales, but these may soon be replaced.

The Royal Institute of Chartered Surveyors (RICS) have published a consultation on a professional statement “Code for leasing business premises” with a view to incorporate a new ‘Proposed Code’ to replace the 2007 Lease Code. 

Unlike its predecessor, the Proposed Code will contain mandatory requirements to be complied with by all RICS registered agents and landlords.  If the Landlord is a RICS member or registered firm, they must ensure that the heads of terms include certain information. An agent acting for a landlord who is not a RICS member or registered firm, must advise the landlord to include the necessary terms in the heads of terms.

The Proposed Code states that the agreed lease terms must be recorded in written heads of terms. These include much of the same detail as the voluntary heads of terms in the 2007 Lease Code, but under the Proposed Code, these terms become mandatory. The Proposed Code also adds a few additional requirements and recommendations as to lease terms.

A surveyor’s failure to act in accordance with the statement, may result in a finding of negligence.

The heads of terms must:

 State the extent of the premises, to include what elements of the structure are included where applicable;

 Give details of all specific rights to be included, for example rights of way or parking;

 State the duration of the lease;

 Confirm whether the tenant’s right to renew under the Landlord and Tenant Act 1954 are included or excluded;

 Contain details of any agreed break terms. The Proposed Code adds that the lease should require the landlord to pay back to the tenant any rent, service charge or insurance rent paid by the tenant for any dates after the break;

 State whether there is a requirement for rent deposit. The Proposed Code adds that there should be details of the circumstances in which the deposit will be returned to the tenant;

 Confirm whether there is a requirement for a guarantee;

 Set out the amount of rent and frequency of payment;

 State whether VAT is payable ;

 Confirm whether there is a rent-free period offered to the tenant;

 Contain details of any rent review dates including the agreed terms of review. The Proposed Code adds that landlords should explore possible alternatives to upwards only reviews to market rent, particularly for long leases;

 Set out the tenant’s rights to assign, sub-let, charge and share. The Proposed Code adds that:

- Tenants should be allowed to assign the whole of the premises with the landlord’s reasonable consent, but unlike in the 2007 Lease Code, landlords may set out in the lease, the reasonable circumstances where consent can be refused;

- Landlords may require the tenant to enter in to an authorised guarantee agreement (AGA) where reasonable to do so, whether or not the assignee is of lower financial standing than the assignor; 

• Confirm whether the tenant will be liable to pay a service charge

 State the repairing responsibilities of all parties. The Proposed Code adds that:

- If a Schedule of Condition is required, the terms should state which party is responsible for the cost of obtaining it;

- Leases of new buildings should details what defect rights are given by the contractor, and the lease should contain an obligation on the landlord to enforce remedies against the contractor for those defects;

 State the use or range of uses to be permitted and any restrictions on change of use;

 Confirm what alterations the tenant is permitted to make;

 Confirm whether the tenant is to pay towards insuring the premises

The statement also includes an updated template for heads of terms, including a checklist, and an updated occupier’s guide for the benefit of new tenants.

The consultation closes on 12th April 2018

For more information, contact Adam on a.davies@fbcmb.co.uk or 01743 284158


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