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Mandatory requirements for RICS member landlords following new Leasing Business Premises Code introduction

10/03/2020

Property, Legal Updates

The Royal Institute of Chartered Surveyors (‘RICS’) published their new Code for Leasing Business Premises on 12 February 2020. The new code, which applies to all RICS member landlords and agents and RICS registered firms, will take effect from 1 September 2020.

Helen Barker, Hatch Brenner Solicitor and Commercial Property lawyer in Norwich commented: “The new Code published by the RICS moves their guidance forwards from being a best practice based code to containing mandatory elements for landlords. With the aim of promoting fairness and best practice regarding tenant negotiations on new commercial lease terms, a key element of the changes is to encourage both parties to a negotiation to obtain professional advice. Commercial landlords should take the opportunity between now and the enforcement date of 1 September to review their standards of practice and Heads of Terms templates to ensure compliance. In our experience, a constructive and collaborative approach to negotiation should always be encouraged.”

The full code can be viewed on the RICS website: https://www.rics.org/uk/upholding-professional-standards/sector-standards/real-estate/code-for-leasing-business-premises-1st-edition/

To summarise the mandatory elements:

      1. Negotiations over the lease must be approached in a constructive and collaborative manner.
      2. A party that is not represented by an RICS member or other property professional must be advised by the other party or its agents about the existence of this code and its supplemental guide and must be recommended to obtain professional advice.
      3. The agreement as to the terms of the lease on a vacant possession letting must be recorded in written heads of terms, stating that it is ‘subject to contract’ and summarising, as a minimum, the position on each of the following aspects:
        1. the identity and extent of the premises (and requiring the landlord to arrange the provision of a Land Registry-compliant plan if the lease is registerable)
        2. any special rights to be granted, such as parking or telecom/data access
        3. the length of term and whether the Landlord and Tenant Act 1954 will apply or be excluded
        4. any options for renewal or break rights
        5. any requirements for a guarantor and/or rent deposit
        6. the amount of rent, frequency of payment and whether exclusive of business rates
        7. whether the landlord intends to charge VAT on the rent
        8. any rent-free period or other incentive
        9. any rent reviews including frequency and basis of review
        10. liability to pay service charge and/or insurance premiums
        11. rights to assign, sublet, charge or share the premises
        12. repairing obligations
        13. the initial permitted use and whether any changes of use will be allowed
        14. rights to make alterations and any particular reinstatement obligations
        15. any initial alterations or fit-out (if known) and
        16. any conditions of the letting, such as subject to surveys, board approvals or planning permission.
      4. At a lease renewal or extension, the heads of terms must comply with the above except for any terms that are stated to follow the tenant’s existing lease subject to reasonable modernisation.
      5. Negotiations should aim to produce letting terms that achieve a fair balance between the parties having regard to their respective commercial interests.

      Helen Barker, Commercial Property Solicitor, is experienced in all aspects of Commercial Property Law. Contact helenbarker@hatchbrenner.co.uk or call 01603 660 811.

      Commercial Property RICS Guidelines

      RICS Leasing Business Premises Code

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