146: Code for leasing business premises – new mandatory heads of terms

The Royal Institute of Chartered Surveyors recently consulted on its new ‘Code for Leasing Business Premises’, with proposals for change that include mandatory requirements for heads of terms. The consultation closed on 12 April 2018 and the results are now awaited.

The existing Code for Leasing Business Premises published in 2007 is a voluntary code and therefore the use of it has not been extensive. The existing 2007 Code is currently made up of the following:

• landlord code for leasing business premises, known as the ‘Lease Code’
• the occupier’s guide; and
• model heads of terms.

The big change proposed in the new Code is that it will be mandatory to use written heads of terms in any transaction, with a requirement on landlords and agents to set out various minimum key terms of the commercial deal.

Whilst a model form of heads of terms is suggested, it is the content of the heads of terms that will matter. A checklist of mandatory terms is included where landlords and agents wish to use their own form of heads of terms. The mandatory information required includes:

• the extent and details of the premises;
• length of the term;
• details of break rights;
• rights of renewal under Landlord and Tenant Act 1954;
• details of rent and rent deposit;
• tenant’s right to assign, sublet, charge or share premises;
• details of service charge and insurance rent;
• parties repairing obligations;
• permitted use and alterations;
• insurance obligations; and
• energy efficiency information.

If these mandatory requirements are not complied with, this could lead to a finding negligence against a surveyor. There may be legal and / or disciplinary consequences for agents and landlords that do not include the necessary information in written heads of terms.

The revised Code will also contain recommendations on best practice for lease provisions. The Code states that these best practice statements should only be departed from for ‘justifiable good reasons’. However, what this statement will mean in practice is not clear. It will be interesting to see if take up of the new Code will be any better when it comes to lease negotiations as experience to date is that it has had limited (if any) effect.