What is the Code for Leasing Business Premises?

As a UK commercial landlord, you must understand your lease agreement and commercial leasing property laws. It is also helpful for you, as a property professional, to understand and abide by the Code for Leasing Business Premises. Although this is voluntary, ensuring your lease complies with it is advisable and good practice. It will help guide you about what should be in a lease, including lease negotiations. This article explains what you need to know about the Code for Leasing Business Premises.

What is the Code?  

The Code for Leasing Business Premises in England and Wales by the Royal Institution of Chartered Surveyors (RICS) represents commercial landlords and commercial tenants. It is in place to try to:

• encourage fair commercial leases for both landlords and tenants;
• ensure a clear head of terms;
• ensure that parties adhere to the lease;
• make landlords and tenants more aware of typical property issues; and
• help commercial tenants negotiate good deals in commercial property space.

In addition to an introduction, the Code consists of three parts:

1. mandatory requirements for commercial landlords;
2. best practice for landlords;
3. appendices with a heads of terms template, a checklist and guide for landlords and tenants on commercial leases. 

Is the Code Mandatory?

As a commercial landlord, you do not have to abide by the Code for Leasing Business Premises. However, the UK Government encourages those in the property industry, including commercial landlords, to comply. Where you abide by the Code, you have a Code-compliant lease. The Code can be particularly beneficial for small businesses. 

However, if you are an RICS member/regulated firm, the Code is a ‘practice statement’, and parts of it require your compliance. Whilst you may not be a RICS member, it is important to understand that your agents may be. The mandatory elements include the following:

• to ensure that you negotiate a lease with your tenant ‘in a constructive and collaborative manner’; 
• where any party to the lease does not have legal representation, to recommend that they do and let them know that the code exists; and
• to provide written heads of terms with specific details such as length of term, break clause rights and details of rent reviews.

Also, as one of the purposes of the Code is to try to encourage parties to a lease to adhere to it, it is to your benefit to ensure your lease complies. Even if you do not comply with the Code, you may find using it as a reference tool when creating commercial lease agreements very helpful. Likewise, you can access the heads of terms template. However, we recommend you always take legal advice when creating commercial leases.

Best Practice

Part of the Code for Leasing contains best practices for commercial landlords. It covers the following points and areas;

1. being clear about what premises you lease, such as the extent of it and granting the rights your tenant will need;
2. ensuring clarity on the length of the term, which includes, for example, renewal rights and break rights;
3. giving specific details about rent deposits and any details needed for guarantors;
4. ensuring that the rent amount and details about rent review are clear, for example, frequency and type of review;
5. ensuring clarity of costs in the lease, such as service charges and insurance costs;
6. providing clarity over what a lease should allow in terms of assigning, subletting, charging and sharing of the lease;
7. details of repair obligations;
8. details about a change of use, alterations and fit-out, including that the former two are only as restrictive as needed; 
9. specific requirements in terms of lease insurance and damage;
10. details of management and operational performance;
11. EPC obligations in the lease; and
12. provisions concerning a landlord’s titles.

Key Takeaways

As a commercial landlord, your commercial lease will set out key terms, including obligations for you and your commercial tenant. It is in your interest to ensure the lease is fair, as it will help encourage your tenant to adhere to the lease terms. One way to help ensure this is to comply with the RICS Code for Leasing Business Premises. The Code provides best practices in commercial leases, such as what a lease should detail, including details about rent review and break clauses. It also contains mandatory requirements for RICS members when negotiating commercial leases. Whilst the Code is not a legal requirement, the UK Government encourages compliance and can help you understand best practices in the property industry.  

If you need help understanding commercial leases, including the Code for Leasing Business Premises in the UK, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.

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