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. Furthermore this consent from the landlord cannot be unreasonably withheld or delayed

  • 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.

Will an authorised guarantee agreement be required?

An authorised guarantee agreement will not be required as a condition of the assignment unless one of the following circumstances occurs:

  1. The company taking the assignment is of a lower financial standing than the assignee

  2. The company taking the assignment is resident or registered outside the UK

Is there anything else under the terms of the code which I should be aware of?

The Code also provides obligations in relation to the following areas:

  • Service charges

  • Repairs

  • Alterations and change of use

  • Insurance

Service Charges

During negotiations with possible tenants landlords must provide estimates of any required service charges, insurance payments and any other outgoings which may be required from the tenant during the terms of the lease.

Repairs

The obligations placed on the tenants in relation to the repair of the premises will depend upon the duration of the specific lease. However, it should be noted that the obligation placed on tenants when giving back the premises following the conclusion of the lease is that the premises should be left in the same condition as they were prior to the commencement of the lease.

Alterations and change of use

The landlords control over alterations and change of use must not be more restrictive than is necessary to protect the value of the premises at the time of the application.

Any alterations to the internal structure of the buildings must be notified to the landlord by the tenants but should not require the consent of the landlord to be made by the tenant unless these changes will affect the systems or services in the building.

What will happen to permitted alterations and the end of the lease?

When alterations have been made during the term of the lease which were permitted by the landlord the tenant should not be required to remove the alteration unless reasonable to do so.

Insurance

Where the property is being insured the Landlord must ensure that the insurance policy terms are fair and reasonable, represent value for money and are placed with reputable insurers.