Leasing Business Premises: RICS new Lease Code 2020

Leasing Business Premises: RICS release new Code for, 1st edition (Lease Code 2020)

In March 2019 the Royal Institute of Chartered Surveyors (RICS) launched a formal consultation to review and update the Code for Leasing Business Premises in England and Wales 2007, 2nd edition (Lease Code 2007).

The consultation has now ended, the result of which is the publication of the RICS Code for Leasing Business Premises, 1st edition (Lease Code 2020) in the form of a professional statement. This will come into effect on 1 September 2020 and replace the Lease Code 2007. 

What is the purpose of the Lease Code 2020?

The Lease Code 2020 will no doubt be welcomed by tenants, landlords and lawyers alike as it seeks to "improve the quality and fairness of negotiations on lease terms and to promote the issue of comprehensive heads of terms that should make the legal drafting process more efficient”. The intention is that it will create a fairer balance when negotiating and agreeing a lease as well as a more efficient process. 

Who will the Lease Code 2020 apply to?

The Lease Code 2020 will apply to lettings of business premises in England and Wales where tenants carry on trade, professional or other business activities in them. 

The Lease Code 2020 is not intended to apply to:

  • Agricultural lettings.

  • Advertising media such as hoardings and premises that will only be used to house plant and equipment.

  • Premises that will be wholly underlet by the tenant.

  • Premises that are let for a period of not more than six months.

What are the practical effects of the Lease Code 2020

The Lease Code 2007 is voluntary and seen as a guide of good practice. Some of the provisions of the Lease Code 2020 will continue to be voluntary, whilst others will become mandatory for RICS members. 

Mandatory requirements

Lease negotiations must be conducted in a constructive and collaborative manner. 

Any party not represented by an RICS member or other property professional must be advised by the other party or its agents about the existence of the code and its supplemental guide. They must be recommended to obtain professional advice.

The agreed terms of a lease must be set out in written heads of terms. RICS have published a template and checklist that cover all matters that should be considered when agreeing a lease. The heads of terms must cover the following as a minimum:

  • the identity and extent of the premises 

  • any special rights to be granted

  • the length of term and whether the Landlord and Tenant Act 1954 will apply or be excluded

  • any options for renewal or break rights

  • any requirements for a guarantor and/or rent deposit

  • the amount of rent, frequency of payment and whether exclusive of business rates

  • if VAT will be applied to the rent

  • any rent-free period or other incentive

  • any rent reviews including frequency and basis of review

  • liability to pay service charge and/or insurance premiums

  • rights to assign, sublet, charge or share the premises

  • repairing obligations

  • the initial permitted use and whether any changes of use will be allowed

  • rights to make alterations and any particular reinstatement obligations

  • any initial alterations or fit-out (if known) and

  • any conditions of the letting

There are also professional, behavioural, competence and technical requirements that RICS members must comply with.

The Lease Code 2020 should be followed when entering a new lease, as well as renewing and extending leases already in existence. The onus is on the landlord (or their letting agent, where there is one) to ensure that the Lease Code 2020 is adhered to.

RICS recognise that "there may be exceptional circumstances in which it is appropriate for a member to depart from these provisions". Where a RICS member departs from the provisions, they should only do so for justifiable good reason. Otherwise, there could be legal and/or disciplinary consequences and failure to act accordingly could result in a finding of negligence against a surveyor.  

A full copy of the Lease Code 2020 can be found online at https://www.rics.org/uk/upholding-professional-standards/sector-standards/real-estate/code-for-leasing-business-premises-1st-edition/