The new RICS code for leasing business premises was published on 12 February 2020 and takes effect from 1 September 2020.
The key difference between the new Code and the 2007 Lease Code is that the new Code contains mandatory provisions which must be complied with by RICS members and firms regulated by RICS.
Which tenancies does the new code apply to?
- All lettings to tenants carrying out trade or business activities for a period exceeding 6
- Excludes agricultural lettings, plant (e.g. telecoms and electricity transformer leases) and advertisement hoardings.
What are the mandatory provisions?
- Negotiations must be approached in a constructive and collaborative manner, to produce letting terms that achieve a fair balance between the parties.
- A non-represented party must be advised about the existence of this code and advised to obtain professional advice.
- Heads of terms must be provided before the initial draft lease is circulated (the landlord or its letting agent is responsible for compliance) and there is a list of requirements to be included in heads of terms.
What must the heads of terms include?
- Extent of the premises – the Landlord is required to produce a Land Registry plan if the lease is registrable (with a term over 7 years)
- Term – length, any options to renew or break, whether the 1954 Act will be excluded
- Rent – amount, frequency of payment, business rates, VAT inclusive, rent free period, any rent reviews and the basis of review, liability for service charge and insurance rent
- Rights – any parking and telecoms rights
- Repairing Obligations – who is responsible for repairing what parts of the premises
- Alterations – including any initial fit out and reinstatement provisions
- Alienation - including rights to assign, sublet, charge and share the premises
- Permitted Use –and whether any change of use is permitted
- Conditions – whether any rent deposit and/or guarantee will be required and whether this is subject to surveys, board approvals or planning permission.
Helpfully, RICS have provided a template heads of terms at Appendix A of the new code which is a good place to start to ensure that your heads of terms are code compliant:
