RICS seeks to introduce mandatory requirements to leasing business premises
On 25 March the Royal Institute of Chartered Surveyors (RICS) launched a formal consultation to seek views on how to “improve the quality and fairness of initial negotiations” between landlords and tenants when agreeing a lease. If agreed, the new Code could have significant implications for commercial landlords and agents.
The consultation closes on 5 May and further details can be found on the RICS website.
What is the purpose of the consultation?
If you are a RICS registered landlord or agent, then the consultation seeks to develop the existing RICS Code for Leasing Business Premises (2007 Code) to make certain elements mandatory. Currently, the Code is entirely voluntary. RICS hope the proposed changes will encourage more ‘constructive and collaborative’ negotiations.
What are the new mandatory requirements of the Code for Leasing Business Premises?
The consultation proposes to keep the majority of the recommendations in the 2007 Code as being voluntary/recommendations. However, several mandatory requirements have been proposed, namely:
• Any party that is not represented by a RICS member or alterative property professional must be advised of the Code’s existence and they should be encouraged to obtain professional advice
• Written heads of terms must be agreed and in place before the draft lease is circulated and must cover a range of concerns. Where premises are being let with vacant possession, the heads of terms must be marked ‘subject to contract’
• The landlord/its agent will be responsible for ensuring that the heads of terms have been fully completed and circulated as above
What must the Heads of Terms include?
The heads of terms document that RICS have drafted should be used as a template or checklist to ensure that all of the following considerations are addressed as a minimum:
• A detailed description of the extent of the premises
• Whether the Landlord and Tenant Act 1954 will apply
• Special rights such as car parking or security
• Service of a Land Registry compliant plan (only mandatory where lease will be registerable)
• The proposed term length
• Rights or options to renew the lease
• Break rights
• Any requirements for a guarantor or rent deposit
• Amounts and frequency of rent
• Whether VAT will be payable on such rent
• Whether there will be a rent free period or any other inducement
• Basis of rent review and dates
• Liability to pay service charges, insurance premiums and any other rates or taxes due
• Alienation provisions
• Repairing obligations
• Permitted use and permission to make alterations or change use
• Any conditions to entering the lease, such as subject to planning permission or surveys, for example
These are all crucial elements that must be established before a lease can be agreed. Having this information readily available at the point of instructing solicitors may not only make matters quicker and more straight-forward, it may also reduce costs.
Timings around the outcome of the RICS consultation are not clear. Landlords, agents and tenants alike, watch this space…