When the 2007 Commercial Lease Code was published, there was a reasonable expectation that negotiations amongst Commercial Property lawyers would be reduced. Institutional landlords and tenants endorsed the Code and, indeed, some were involved in its drafting. The idea was that, whilst the 2007 Commercial Lease Code was not mandatory, it encouraged a spirit of goodwill and negotiation between the parties rather than conflict and obstacles. In practice, however, most landlords would promptly dismiss any tenant’s suggestion that a lease should comply, on the basis that, unless it was formally included in heads of terms, there was no need for it.
Fast forward to 2020 and the Royal Institute of Chartered Surveyors (RICS) have circulated a new 2020 Commercial Lease Code which comes into effect on 1 September. This Code is in the form of a professional statement and its aim is to improve the quality and fairness of negotiations on lease terms with a view to assisting in the circulation of heads of terms that are comprehensive and aid a more efficient legal process. The new Code is to apply to those tenants carrying on a trade, profession or other business activities in premises, excluding agricultural lettings, hoardings, premises housing plant and equipment, premises to be wholly sublet or any rentals of 6 months or less.
The new Code contains sections that will be mandatory for Chartered Surveyors to comply with, whereas others will, much like the 2007 Code, give an indication of good practice. However, now there is an expectation that a chartered surveyor would have to justify any decision to depart from the professional statement.
The new Code goes into much more detail than the 2007 Code. The requirements on rent review make it clear that the result should not be to create a headline rent unless specifically agreed. The reasons for requiring a rent deposit has been elaborated on and in the alienation provisions, the new Code specifies more clearly the circumstances in which it is reasonable to refuse consent to assignment.
The mandatory parts of the new Code require that any Chartered Surveyor agreeing terms of a lease on vacant possession must record them in written heads of terms, attaching draft heads of terms that can be used as a guide in the negotiations and to almost provide a checklist. They should state that the terms agreed are subject to contract and specify, as a minimum, the items in the new Code. Other provisions set out good practice guidance serving to uphold the profession.
It cannot be denied that any effort to move towards limiting negotiation between the lawyers has to come from the start of the negotiations, in other words with the surveyors negotiating the terms. It should follow that detailed and fair terms agreed at the outset should set the basis of the negotiations between the respective parties and their legal advisors.
However, there is also the matter of adopting a culture of referencing to the new Code by all involved, in that, the more that practitioners use the new Code as a benchmark in their day to day negotiations, the more there is bound to be a shift towards the middle. It remains to be seen as to whether the new Code has the teeth to change the current culture.
For further advice on the above or any other commercial property matter, please contact our highly experienced Commercial Property team.