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21st February 2020

New RICS Code introduces mandatory requirements for members in business lease negotiations

The current RICS Code for Leasing Business Premises was published in 2007. It is now to be replaced by the new Code for Leasing Business Premises (“the new Code”) which was published by the RICS on 12th February 2020 and is to take effect from 1st September 2020.
The current Royal Institution of Chartered Surveyors (RICS) Code for Leasing Business Premises was published in 2007 and like the two previous editions its purpose is to guide landlords towards an approach of fairness and best practice as regards their negotiations with tenants on new commercial lease terms. The difficulty in implementing that Code is that it is entirely voluntary.

It is now to be replaced by the new Code for Leasing Business Premises (“the new Code”) which was published by the RICS on 12th February 2020 and is to take effect from 1st September 2020.

The core difference between the existing 2007 code and the new Code is that the new Code contains some mandatory requirements that RICS member landlords and agents and RICS registered firms are obliged to comply with. The use of the word “must” in the list of mandatory requirements attaches a more formal professional standards status to the new Code than has existed before. There is also a set of best practices contained within the new Code but failure to comply with mandatory aspects of the new Code or to justify departures from the good practices part of the new Code may lead to disciplinary action. There are also exceptions and the new Code is not intended to apply to agricultural lettings, advertising media such as hoardings and premises only used to house plant and equipment, premises that will be wholly underlet by the tenant and premises that are let for a period of not more than 6 months.

The intention of the new Code is to promote fairness and clarity around initial negotiations and the production of a comprehensive list of terms agreed that allows both parties to be fully informed before deciding to proceed with a letting.

In summary the mandatory requirements include the following key points:-

1.   Negotiations must be approached in a constructive and collaborative manner.

2.   A 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 new Code and must be recommended to take professional advice.

3.   The Heads of Terms must be in writing and state that it is subject to contract and cover all the following points:

          - The identity and extent of the premises including any elements of the structure which are included

          - Details of any special rights to be included such as parking or data/telecoms access

          - The length of the term

          - Whether rights of renewal under the Landlord and Tenant Act 1954 are to be included or excluded

          - Any options for renewal or break rights

          - Any requirements for a guarantor or rent deposit

          - The amount of rent, the frequency of payment and whether business rates are included or excluded

          - Whether the landlord will be charging VAT on the rent

          - Any rent free period or other incentive

         - Any rent reviews , the frequency and the basis of review

          - Liability for service charges and/or insurance

         - Rights to assign, underlet, charge or share the premises

         - Repairing obligations

        - The permitted use and what changes will be permitted

         - Rights to make alterations and reinstatement obligations

          - Any conditions on the letting such as planning approvals , board approvals, subject to survey.

A full copy of the new Code, providing more detailed information on its content, can be accessed by clicking on https://www.rics.org/uk/upholding-professional-standards/sector-standards/real-estate/code-for-leasing-business-premises-1st-edition/

Advice to all RICS regulated firms and landlords is to take this opportunity before September to review their standards of practice and Heads of Terms templates and update them to take account of the new requirements.

If you wish to discuss any of the issues raised in this article then please contact Carolynn on 020 7400 5032 or click here to email Carolynn.
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