RICS Code of Leasing Business Premises – how does this affect Tenants?

The Royal Institute of Chartered Surveyors has released the latest Code for Leasing Business Premises (1st Edition) following a consultation in 2019. The Code is intended to improve the process of lease negotiation, making them fairer, and more transparent. The last guidance was produced in 2007 and the new Code implements a number of key changes that will affect both landlords (that are regulated by the RICS) and tenants.

Perhaps the most important update is the new code is this is the first time it is published as a professional statement meaning it is the first publication on leasing of business premises which sets out mandatory professional, behavioural, competence and/or technical requirements from which RICS members / regulated companies must adhere to. The professional statement takes effect from 1st September 2020.

Whilst this may appear to be aimed at landlords and agents there are a number of implications on those looking to lease commercial premises. We highlight below a number of the key mandatory provisions and how these may affect those looking to lease commercial premises:

A party that is not represented by an RICS member or other property professional must be advised by the other part or its agents about the existence of this code and its supplemental guide and must be recommended to obtain professional advice.

Commercial leases are complex and whilst Daniel Watney would recommend taking professional advice when acquiring new premises in any event, this mandatory requirement that an agent or landlord must recommend an occupier to take professional advice. The purpose of this is to ensure that occupiers do not enter into leases which include onerous terms. This might, for example, include agreeing to a rent not aligned with the market, headline rent review provisions or onerous repair covenants. Daniel Watney lease advisory is well placed to advise on a wide range of professional services when leasing a new premises:

Commercial Agency
Our team of commercial property agents can in not only sourcing new premises but negotiating the detailed heads of terms to secure the best commercial terms (rent, rent free etc.) but also ensure you are appropriately protected (such as repair covenants),

Lease Advisory
Our lease advisory professionals can assist with navigating you through the complicated lease renewal process, particularly where your existing lease is protected by the Landlord and Tenant 1954 Act.

Building Consultancy
Whether you require pre-acquisition due diligence or assistance with the fitting out of your new premises, Daniel Watney’s building surveyors have extensive experience in providing these services.
The terms of the lease must be recorded in Heads of Terms and stated as subject to contract and as a minimum include the following.

Identity and extent of the premises
This may appear obvious at first however there are intricacies that could be missed – for example is the terrace included within your demise and what implication does this have on your rent and repairing liabilities?

Special rights granted
Are you permitted to install fibre? Do you have the right to connect to the use the shower and cycle facilities within the building?

Length of term and whether the lease is contracted inside or outside the Landlord and Tenant 1954 Act
Leases that are contracted ‘inside’ the 1954 Act benefit from the Security of Tenure provisions afforded by the 1954 Act. In short, this means as a tenant you have a right to renew your lease, unless the landlord can demonstrate certain grounds for opposition.

Renewal or break rights
Do you have a break option and if so, what are the provisions for service notice?

Guarantor / deposit requirements
Are you being told you have to pay a deposit – this may not be required! Equally under what circumstances is your deposit going to be returned?

Rent and frequency of payment
Is your rent inclusive of business rates and service charge? Are you paying monthly or quarterly, in advance or in arrears?

VAT
Is the property elected for VAT and is it chargeable on rent and service charge?

Rent free or incentives
How much rent free (or other incentives) is the landlord granting – is this in line with the market?

Rent reviews – frequency & basis
What are the hypothetical terms to be assumed for the purpose of assessing the rent at review?

Service Charge & Insurance
How is the service charge and insurance apportioned? Is it fair and reasonable?

Alienation rights
Do you have the ability to sub-let or assign? If so under what circumstances?

Repair
What condition do you need to leave the property in when your lease expires?

Use Class
What Use Class are you permitted to use the property in – is this aligned with your proposed use?

Alterations & Reinstatement
Are you permitted to make structural or non-structural alterations and what consents might you require?

Conditions

For further information or to enquire about the services detail above please contact us on 020 3077 3400