What obligations exist under the Code of Practice for leasing business premises in England and Wales?

The Code of Practice

The Code of Practice for leasing business premises in England and Wales came into force in 2007. The code was initially adopted in 1995 and has been amended since this date with the newest amendments taking the form of the 2007 code and was the result of industry discussions between representatives of landlords, tenants and government.

What obligations exist under the Code of Practice?

Lease negotiations

Landlords must make their offers to their tenants in writing clearly stating the following:

  • The rent

  • The length of term and any break rights

  • Whether or not tenants will have security of tenure

  • The rent review arrangements

  • Rights to assign, sublet and share the premises

  • Repairing obligations

The Rent

The lease term should clearly state the amount of the rent and any rent deposit proposals. Included within the rent deposit proposals will be the amount to be paid for each deposit, when this should be paid and for how long the arrangements will continue.

Furthermore the tenants should be protected against the default or the insolvency of the landlord.

The length of the term and any break rights

The length of term of the lease must be clearly stated.

The only pre-conditions which may be imposed on tenants to exercise any break clauses should be that they are up to date with the main rent that they give up occupation and do not leave behind any subleases still continuing.

Rent Review

The lease should enable both the landlord and the tenant to start the rent review process. Rent reviews should be clear and headline rent review clauses should not be used. On request landlords should offer alternatives to their proposed option for rent review priced on a risk-adjusted basis.  In the situation whereby landlords are unable to give alternatives they should provide the tenant with the reasons behind this.

Rights to assign, sublet or share the premises

Under the Code of Practice for commercial leases a lease should allow the following:

  • Enable tenants to assign the whole premises with the landlord’s consent.

  • The lease should not refer to any specific circumstances for refusal

  • The situation whereby the proposed company or group of companies taking on the assignment must be of at least the same financial standing as the proposed assignee however, will not fall within the second point above.

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For more information on:

  • Will an authorised guarantee agreement be required?
  • Is there anything else under the terms of the code which I should be aware of?
  • Service Charges
  • Repairs
  • Alterations and change of use
  • What will happen to permitted alterations and the end of the lease?
  • Insurance