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Second time around for RICS consultation on Lease Code

In our blog on 4 April 2018, we encouraged interested parties to input into the RICS consultation on its professional statement, Code for leasing business premises, 1st edition.  With the status of a professional statement, the new Code has sufficient weight to deliver a professional punch whereas the current regime is voluntary.

Following last year’s consultation and discussions between landlords, tenants and other trade bodies, a number of changes have been made to the Code and the RICS has launched a further consultation.  The consultation can be found here and closes at midnight on 5 May.

In a welcome change, the current draft contains fewer mandatory requirements for RICS regulated surveyors or firms, although the requirement for written heads of terms before issuing a draft lease is still mandatory.

The key mandatory points of the revised Code are as follows:-

  • Lease negotiations must be approached in a constructive and collaborative manner.
  • A party that is not represented by an RICS member or other property professional (surveyors and property lawyers) must be informed of the existence of the Code and the supplemental guidance and must be advised to obtain professional advice.
  • On a letting with vacant possession the agreed terms for the proposed lease must be recorded in written heads of terms which state that it is “subject to contract” and must summarise as a minimum the agreed position on each of the aspects listed in the Code. These aspects are also listed in a checklist which follows the heads of terms.
  • The heads of terms on a lease renewal or extension must also include the aspects listed in the Code, but may state that certain terms will follow the existing lease, subject to reasonable modernisation.
  • Negotiations should aim to produce letting terms that achieve a fair balance between the parties having regard to their respective commercial interests.

The landlord or its agent will be responsible for ensuring that Code compliant heads of terms are in place before the first draft lease is circulated. In cases where a landlord or agent wishes to use bespoke heads of terms, the RICS template can be used as a checklist.

The remainder of the recommendations of the Code are broadly similar to the 2007 Code and set out areas of good practice.

The RICS are encouraging parties to comment on whether the concerns raised in last year’s consultation have been addressed. Further input into the consultation, particularly by RICS members who are impacted by the regulatory requirements, is welcomed.

We have been asked how the new Lease Code fits with the Model Commercial Lease (MCL) (https://modelcommerciallease.co.uk/).  The Lease Code is designed to drive the market and the MCL is designed to reflect it (as far as possible).  The MCL committee believe the MCL should reflect a fair starting point for an investor when letting premises and should therefore be consistent with the Lease Code where possible.  Various consultant members of the MCL committee have therefore responded accordingly to the consultation.