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Hot Topic Highlight – RICS Professional Statement, Code for Leasing Business Premises 2020

Updated: Oct 30, 2023

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What is today's blog about?

In this week’s blog, we take a look at the new RICS Professional Statement, Code for leasing business premises, England and Wales (1st Edition).

You can download a copy from the RICS website.

You can also listen to our CPD podcast on Anchor for more free AssocRICS and RICS APC training and support.

If you don't have time to read the full blog now, you can watch our short CPD summary video below.

When is the new Professional Statement effective?

1 September 2020.

What is the aim of the new Professional Statement?

To improve transparency and fairness in commercial lease negotiation, including initial negotiation of lease terms and mandatory provision of comprehensive heads of terms to facilitate the legal drafting process. This applies to both new leases and lease renewals.

Other key aims include:

  • Providing assurance and clarity to occupiers

  • Promoting a less adversarial relationship between occupiers, owners and their advisors

  • Encouraging surveyors and lawyers to work collaboratively

  • Encouraging occupiers to take professional advice

Why was the former 2007 Code updated?

The former 2007 Code was produced by a coalition of industry bodies (including RICS), whereas the new 2020 Professional Statement has been published directly by RICS. It is supported by a number of other organisations, such as BPF, REVO, Law Society, Federation of Small Business, Association of Licenced Multiple Retailers and BCO.

University of Reading research in 2009 showed a lack of awareness and usage of the 2007 Code. This has been addressed by the new Code having Professional Statement status – meaning that it is of mandatory application to RICS Members and Firms.

How is the new Code structured?

  • Introduction

  • Mandatory requirements

  • Lease negotiation best practice

  • Appendix A – Template heads of terms and checklist

  • Appendix B – Guide for landlords and tenants

What does ‘commercial’ include?

‘Commercial’ is defined to include ‘tenants who will carry on trade, professional or other business activities in them, but it does not apply to agricultural lettings, to premises that will only be used for housing plant and equipment (such as electricity transformers or telecoms) or advertising media (such as hoardings), to premises that are intended to be wholly sublet by the tenant, or to premises being let for a period of not more than six months’.

What are the mandatory requirements?

Negotiations and heads of terms must be approached in a constructive and collaborative manner. This should produce letting terms that ‘achieve a fair balance between the parties, having regard to their respective commercial interests’.

Parties who are not represented by a RICS Member or property professional must be advised about the existence of the Code and to obtain professional representation.

Written heads of terms must be provided by the landlord or their letting agent on a subject to contract basis.

These must include the following terms as a minimum:

  • Identity and extent of the premises, with the landlord providing a Land Registry compliant plan if the lease is registerable (i.e. lease term over 7 years)

  • Special rights to be granted, e.g. parking or telecom/data access

  • Term length and security of tenure

  • Break or renewal rights

  • Any guarantor and/or rent deposit

  • Rent and frequency of payment

  • Payment of business rates and VAT

  • Incentives, e.g. rent free

  • Rent reviews, frequency and basis

  • Service charge

  • Insurance

  • Alienation rights

  • Repairing obligation

  • Permitted use and changes of use

  • Alterations and reinstatement

  • Initial alterations or fit-out

  • Conditions, e.g. subject to survey, board approval or planning consent

The above also apply at lease renewal or extension, however, terms stated may follow the existing lease subject to reasonable modernisation.

To ensure that the minimum requirements are met, the parties should refer to the template heads of terms and checklist in Appendix A of the Professional Statement. The checklist, in particular, can be used when a landlord prefers to use their own heads of term document to ensure that the mandatory minimum requirements are met.

What are the best practice requirements?

We will take a look at some of the best practice requirements below, although this is not an exhaustive list. Make sure that you read the full document to familiarise yourself with all of the best practice guidance if you are involved in the negotiation of commercial leases.

For break options, the Code recommends that these should be conditional only:

  • ‘On the tenant paying all basic rent payable on any date before the break date, giving up occupation and leaving no subtenants or other occupiers.

  • Disputes about the state of the premises, or what has been left behind or removed, should be settled later, as at normal lease expiry.

  • Leases should require landlords to repay any rent, service charge or insurance paid by the tenant for any period after a break takes effect.

  • Repayment of service charges may be deferred until the service charge accounts are finalised’.

For rent deposits, the following must be confirmed:

  • Amount held (including/excluding VAT)

  • Time it will be held

  • Whether it will be held as security for rent only or for all other lease obligations

  • When it will be returned to the tenant with any accrued interest

For rent reviews, both parties should be able to initiate the process and there should be no time limits imposed to prevent a review or set a new rent through inaction by either party.

In relation to alienation, tenants should be permitted to assign whole with landlord’s consent, not to be unreasonably withheld or delayed. Reasonable and appropriate circumstances where consent can be refused may be stated, e.g. rental arrears, or where the assignee has insufficient financial strength. When assigning a lease, the landlord may reasonably require the tenant to provide an Authorised Guarantee Agreement (AGA).

In terms of change of use, clauses should be no more restrictive than is necessary to protect the value of the premises and any adjoining or neighbouring premises owned by the landlord.

What is included in the Guide for landlords and tenants (Appendix B)?

This provides supplementary guidance and is not of mandatory application. It aims to assist both landlords and tenants in understanding commercial lease negotiations and the aims of the new Professional Statement. It is essential for surveyors to read and a helpful point of reference for clients to ensure that they understand the process of agreeing or renewing a commercial lease.

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Stay tuned for our next blog post to help build a better you

N.b. Nothing in this article constitutes legal, professional or financial advice.


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