The Code for Leasing Business Premises in England and Wales 2007

The Government has for some time been concerned over the lack of flexibility of lease terms and in particular, the acceptance of the same by smaller business tenants who may not always have access to suitable professional advice.

There have been previous attempts to produce a Code of Practice for Commercial Leases with which the property industry was intended to comply but generally the recommendations have been ignored.

The Government therefore, made it clear that continued failure by the property industry to follow its own Code would result in the introduction of legislation.

Consequently the new Code for Leasing Business Premises (third edition) was launched on 28 March 2007 which tenants should be aware and endeavour to take advantage of when agreeing lease terms. The Code consists of three sections, namely:-

a. The Landlord Code
b. The Occupier Guide
c. The Model Heads of Terms.

For the purposes of this article, I shall concentrate on the Landlord Code.

The Code highlights and gives guidance for a more reasonable approach in favour of tenants in relation to the following ten fundamental areas.

1. Lease negotiations.
2. Rent deposits and guarantees.
3. Length of term, breaks and renewal rights.
4. Rent review
5. Assignment and subletting.
6. Service charges.
7. Repairs
8. Alterations and change of use.
9. Insurance.
10. Ongoing management.

All the above issues are of importance to tenants but in particular:-

• The only pre-conditions to tenants exercising any break rights should be that they are up to date with the main rent, give up occupation and leave behind no continuing subleases. Disputes about the state of the premises etc, should be settled later and not be used by landlords as a means of defeating the tenants’ right to break.
• Landlords should, if the tenant requests, offer alternatives to upwards only rent reviews, priced on a risk adjusted basis.
• Although still requiring landlords’ consent not to be unreasonably withheld or delayed, the tenants’ ability to assign or sublet the premises should not be overly restrictive.
• Tenants’ obligations to repair the premises should reflect the length of term and existing condition of the premises. If possible, tenants should only be required to hand back the premises at the end of the term in the same condition as at the time the lease was granted.
• The tenants’ ability to carry out alterations or change the use should not be overly restrictive.
• The rent should be suspended if the premises are damaged by an uninsured as well as an insured risk unless caused by a deliberate act of the tenant. Tenants should not therefore, find themselves liable for uninsured damage.

Although the Code contains recommendations rather than requirements, it is still in the interest of landlords to comply where possible. As referred to above, continued failure by the industry to do so may well result in the introduction of legislation to enforce so called flexibility in relation to lease terms. Legislation is not what property owners want and is likely to result in an increase in costs coupled with reduced flexibility. It should also, be noted by landlords that the Code is supported by the British Property Federation who will award an accreditation to commercial landlords who comply. It is hoped that such accreditation will give the landlord a commercial advantage in the market place and provide reassurance to tenants.

Published 09/11/2007. The author of this article is David Stone