News & Insights

RICS’s New Code for Leasing Business and Commercial Premises

Rebecca Staunton explains the new code that RICS landlords and agents may need to comply with when granting new leases for business/commercial purposes.

The Royal Institution of Chartered Surveyors (RICS) has recently concluded a consultation on its proposed professional statement code (the Code) for leasing business and commercial premises in the UK. The Code is important to landlords/agents who are RICS members because it outlines requirements that are mandatory and some that are good practice points.

Mandatory Requirements

If you are a landlord or its agent and you are a RICS member, you must abide by these mandatory requirements when granting a lease:

  • Negotiations for the lease must be conducted in a constructive and collaborative way.
  • A party to the lease that is not represented or advised by a RICS member or other professional body must be advised of the Code’s existence and be recommended to seek professional advice.
  • Where a property is to be let with vacant possession, the agreed terms must be stated in the heads of terms and noted “subject to contract.”
  • The heads of terms must outline the agreed position on a various number of matters which are listed in the Code (see below).
  • You, as the landlord or its agent (where applicable), will be responsible for ensuring that the heads of terms are in place before the draft lease is drawn up and circulated.

Contents of the Heads of Terms

Provision Mandatory Requirements Good Practice Points
Property Details The heads of terms must clearly define:

  • The details of the premises to be let.
  • Details of any special rights to be included, such as car parking or data/telecoms access.

A Land Registry compliant plan where the lease is registrable at the Land Registry must be supplied.

Term, Renewals and Break Rights The heads of terms must outline:

  • The term of the lease.
  • If there are rights of renewal.
  • Any break rights.
Deposits and Guarantees The heads of terms must specify any requirements for a guarantor or rent deposit.

The terms should state:

  • The amount of the deposit (and whether it includes VAT).
  • What it is security for.
  • The triggers for release of the deposit/guarantee.
Rent and Rent Review It is a requirement that the heads of terms state:

  • The amount of rent and frequency of instalments.
  • Whether VAT is applicable.
  • Any rent-free period.
  • The rent review basis and rent review dates (if applicable).
Service charges, Insurance and Other Outgoings The heads of terms must detail whether the tenant will be liable to pay service charge, insurance rent or business rates.
Alienation The heads of terms must expressly state the tenant’s rights to assign, sublet, charge and share the premises. The Code states that alienation should be allowed with the landlord’s consent, which is to not be unreasonably withheld or delayed. Landlords can, however, set out circumstances where consent may be lawfully refused.
Repairs It is compulsory for the heads of terms to outline each party’s repairing obligations. Leases should impose tenants’ repairing obligations appropriate to the length of term and the condition of the premises. If a schedule of condition is required, the heads of terms should state which party is responsible for the cost of obtaining it.
Alterations A mandatory requirement for the heads of terms is to give details of:

  •  The initial permitted use(s) and any restrictions on changing use.
  • Any restrictions on making alterations and details of any initial alterations or fit-out to be carried out by either party.
The landlord’s consent should not normally be required for internal non-structural alterations that do not affect the character, value or energy efficiency performance of the building.

 

Insurance and Damage It is essential that the heads of terms outline whether the tenant is to contribute towards the insurance premiums.
Green Lease Clauses and Energy Performance Certificates Leases should state which party will obtain any energy performance certificates. Leases in multi-let properties should contain provisions that encourage collaboration between the parties to improve operative efficiencies and to share available data. The parties should consider including other “green” provisions from the Green Lease toolkit.