Landlords and tenants negotiating leases after 1st September 2020 will need to be aware of the Lease Code 2020 (“the 2020 Code”) which replaces the voluntary Lease Code 2007, and in doing so brings about a raft of changes for RICS (Royal Institute of Chartered Surveyors) members, surveyors and RICS regulated firms. Part of the 2020 Code is mandatory, although part remains voluntary.
The mandatory section of the 2020 Code relates to negotiation requirements when agreeing Heads of Terms. The remaining part of the 2020 Code indicates what is industry ‘best practice’, when negotiating a new lease but is not mandatory.
What is mandatory?
When an agreement on the lease terms is reached it must be recorded in written Heads of Terms, identifying that they are subject to contract.
In negotiating those Heads of Terms the parties must cover, as a minimum the following Heads:
- The identity and extent of the premises
- Whether any special rights are to be granted (eg car parking rights)
- The length of term and whether the LTA 1954 will apply or be excluded
- Any options for renewal or break rights
- Any requirements for a guarantor and/or rent deposit
- The basis of any rent review
- Any liability to pay a service charge
- Any alienation rights/restrictions (assigning and underletting)
- Repairing obligations
- Alteration rights/restrictions (structural and non-structural)
The parties should be aware that if they are represented by a RICS member, surveyor or regulated firm (and their counterpart is not) then they have a duty to inform their counterpart of the 2020 Code and advise them to seek appropriate professional guidance.
All other aspects of the lease negotiations are non-mandatory and subject to the ‘best practice’ guidance. The Code provides guidance on a non-exhaustive list of standard Heads such as insurance and change of use. The full list can be seen here.
What sort of lettings will the 2020 Code apply to?
The Code will apply to leases where the tenant will:
- Carry on trade from the premises
- Provide professional services/activities from the premises
- Carry out other business activities from the premises
The code will not apply to
- Agricultural lettings.
- Premises being solely used for housing plant and equipment or advertising equipment/products.
- Premises that are going to be wholly sublet by the tenant.
- Leases that are no longer than six months in duration.
The 2020 Code aims to improve the fairness and quality of commercial lease negotiations. Although only mandatory for RICS members/bodies, it is expected the Code will become the new industry standard for the negotiating of commercial leases.
It is advisable for those currently negotiating a commercial lease that is expected to be entered into on or after 1 September 2020 to ensure they are abiding by ‘best practice’ and to seek legal advice if at all unsure.
For those seeking guidance on the 2020 Code and the impact it may have on your future plans, please contact Carly Cornell.