After an extensive period of consultation, RICS has this week released the new “Code for renting business premises”.
The code makes recommendations on each of the topics, and these are not mandatory. The suggestions are to be adopted, as good practices. These include a list of matters to consider when the lease is prepared, negotiated and warn against traps.
This new code replaces the older Code for Leasing Business Premises in England and Wales 2007. The earlier code was voluntary. The New Code contains mandatory requirements that must be complied to by specialists and landowners who are RICS individuals or enrolled firms.
The new code applies to most business premises in England and Wales. However excludes agricultural premises only used to house plant and equipment or for advertising, and premises to be wholly sublet by the tenant. Short lets for six months or less are excluded.
The New 2020 Code also sets out expectations with recommended best practices which all members should only depart from for a justifiable good reason. The New Code is valid from 1 September 2020.
You can click here to view the briefing, which is an overview of how the New Code will affect landlords, agents and tenants.
New Code Mandatory requirements
There are a small number of compulsory requirements for RICS members:
- Lease negotiations must be approached in a constructive and collaborative manner.
- An unrepresented party must be advised about the existence of the code and its supplemental guide. This must be recommended to obtain professional advice.
- There must be written heads of terms, subject to contract, summarising the position on a number of specified aspects. This needs to include the identity and extent of the premises; length of term; whether the Landlord and Tenant Act 1954 will be excluded; break rights; guarantor/rent deposit requirements; amount of rent, any rent-free period, rent reviews, VAT; liability to pay service charge and insurance premiums; rights to assign, sublet, charge, share; repair; permitted use; alterations and reinstatement; conditions of the letting such as subject to survey, board approval.
- The same requirements apply to a lease renewal or extension, except for any terms that are stated to follow the tenant’s existing lease subject to reasonable modernisation.
- Negotiations should aim to produce letting terms that achieve a fair balance between the parties having regard to their respective commercial interests.
- The landlord or its letting agent will be responsible for ensuring compliant heads of terms are in place before the initial draft lease is circulated.
- The code includes as an appendix a template heads of terms which mirrors the code. It is not a requirement to use the template, but the code includes a checklist — this enabling those with their own form of heads of terms to ensure compliance with the code.
Source: British Landlords Association
Author: Helen Cartwright
Date: 15th of February 2020