The RICS code for leasing business premises was issued on 12 February 2020 and will become enforceable on 1 September 2020.
What is the RICS Code?
The Code is the result of discussions between representatives of landlords, tenants and government with the aim of improving the quality and fairness of negotiations on lease terms. It identifies fair and balanced terms that are usually important in negotiating leases to streamline the drafting process for heads of terms. The RICS intend for the Code to be used as a checklist for negotiations before the grant of leases or lease renewals and should be used alongside their template heads of terms.
Who must comply with the Code?
The 2020 Code replaces the 2007 Code, with the 2020 Code containing compulsory provisions that must be complied with by RICS regulated members and firms.
Which tenancies does the new code apply to?
It applies to all commercial tenancies in England and Wales for a period exceeding 6 months, excluding agricultural tenancies, premises that will only be used for housing plant and equipment or advertising media.
What are the required provisions?
- The terms must strike a fair balance between the parties, so negotiations must be collaborative and constructive.
• If a party is not represented, they will need to be advised to obtain professional advice and be notified of the existence of the Code.
• The landlord’s letting agent must circulate the compliant draft heads of terms before the draft lease is provided.
What must the heads of terms include to be compliant?
- Demise of the premises – if the term is for more than 7 years a compliant plan will be required to register the lease at the Land Registry.
- Term – the length of the term and any rights to renew or break the lease. It must also be made clear whether the lease is to be excluded from the security of tenure protection provided for by the 1954 Act.
• Rent – the amount (and if it includes VAT), the frequency of payment (any rent-free period), any rent review and liability for business rates, insurance rent and service charge.
• Rights – e.g. to access the premises, to park, or to use utilities such as telecoms and gas.
• Repairing obligations – the responsibilities of the parties for repairing the premises.
• Alterations – the ability for the tenant to alter the premises. The heads of terms should also detail initial fit out and reinstatement provisions.
• Alienation – rights to assign, sublet, charge and share the premises.
• Permitted use and the ability to alter the use.
• Provisos – rent deposits, guarantees, planning permissions, board approvals, surveys.
Where can I access the Code?
The Code is available on the RICS website, with the template heads of terms available at Appendix A.
Will I need legal advice?
Heads of terms are agreed principles usually agreed out by your agent or surveyor before the lawyers are instructed. However, it is important to instruct a solicitor to negotiate the finer details of a lease.
We understand that every lease is different and we work closely with our clients to make sure we understand their expectations, priorities and timescales, negotiating a lease that will meet those requirements.
Please contact Tom Marshall, commercial property lawyer if you are looking for a commercial landlord and tenant lawyer.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.