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Are your lease terms reasonable?

There has been a code for leasing commercial property since 2007, which acts as a guide for setting out key terms that are considered reasonable in the market.

In February 2020, the Royal Institution of Chartered Surveyors (RICS) published a new code to reflect the modernisation of commercial lease terms over the past 13 years.

The new code aims to improve the quality and fairness of negotiations and to promote the use of comprehensive heads of terms to make the legal drafting process more efficient and cost effective.

The new 2020 Code will supersede the 2007 Code and will be effective from 1 September 2020.

The 2020 Code will apply to most commercial property lettings in England and Wales but there are some exclusions, such as agricultural premises, premises used to house plant and equipment only, premises that will be wholly sublet by a tenant and short lets of 6 months or less.

We summarise some of the notable changes below:

  • The 2020 Code makes recommendations of good practice but there are some mandatory requirements for RICS members and so RICS regulated agents, surveyors and landlords must comply with certain requirements, promoting a collaborative approach to agreeing lease terms.
  • Break Clauses – leases should require the landlord to reimburse the tenant for rent, insurance rent and service charge that has been paid in advance by the tenant, but relates to a period after the break date.
  • Rent Reviews – provisions for indexed rent reviews should not contain obscure formula which is drafted to produce a disproportionate increase of rent.
  • Inherent Defects and Repairs – where a tenant takes a lease of newly built premises with repairing obligations, the tenant should be given suitable protection against inherent construction defects for a suitable period of time.
  • Reinstatement –a landlord can require a tenant to remove alterations where the landlord has reasonable grounds to require the removal. The 2020 Code advises documenting any agreement as to reinstatement in any consent for alterations.
  • Energy Performance Certificate (EPC) – new provisions require cooperation to obtain EPCs, recognising the increasing importance of green leasing.

A copy of the 2020 Code is available here.

If you would like more information on any of the above, please contact a member of our Commercial Property team today.

 

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Claudia Willard

Solicitor
Commercial Property
CWillard@LawBlacks.com
0113 322 2827
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