Code for leasing business premises

Question 1

Where does the code come from?

Answer 1

Royal institution of chartered surveyors

Question 2

Who does it apply to?

Answer 2

RICS members and and RICS regulated firms

Applies to most commercial lettings with some exceptions like for tenancies of 6 months or less

Question 3

What does the code contain?

Answer 3

It concerns itself with NEGOCIATION OF THE HEADS OF TERMS

It has mandatory requirements - use the words “must”

and good practice requirements - use the words “should”- members must still follow good practice unless there are exceptional circumstances not to

Question 4

What are the mandatory requirements of the code?

Answer 4

Lease negotiations must be approached in a constructive and collaborative manner

An unrepresented party must be advised about the existence of the code and recommended to seek professional advice

the landlord or his letting agent is responsible for ensuring heads of terms are compliant with the code and agree before the draft is circulated

Mandatory to prepare written heads of terms stating that it is subject to contract

Question 5

What are the mandatory requirements to be contained in the heads of terms?

Answer 5

Extent of the premises

length of term and break rights

rent and rent review and basis

repairing obligations

rights to assign to a new party or sublet

permitted use of the property and if it can be changed

rights to alter the property and any obligations to put the property back in its original state

Question 6

What are good practice concerns of the code?

Answer 6

Premises:

Heads of terms should define them clearly, provide a lease plan and rights the tenant has

Length of term, renewal rights and break rights:

Specified clearly in HOT
Code sets out basic conditions to exercising the break that are acceptable

Rent and rent review;

HOT to state initial rent, frequency of payment, if vat will be charged, any rent free periods and how rent review will be conducted if at all and how often

Landlord’s title:

Landlord is responsible for obtaining consent to have the right to grant the lease

Repairs:

Tenant repair obligations in relation to the length of the term and the condition of the premises , if qualified repairing obligation is given then there needs to be a schedule of condition. For new property the tenant should be given protection against inherent construction defects

Insurance and damage:

lease should be suspend the rent if property is damaged by an insured risk unless due to the tenant’s actions