The Royal Institution of Chartered Surveyors has launched a consultation on its proposed Professional Statement, Code for leasing business premises in England and Wales 2019, 1st edition. The RICS’s Code for Leasing business premises dates back to the 1990s, but it has not had regulatory implications for RICS regulated surveyors or firms. The most significant change in the new Code is that it is an RICS Professional Statement, which does carry such regulatory implications. In particular, for the first time there are mandatory requirements for RICS regulated surveyors or firms.
The requirements are limited.
- Lease negotiations must be approached in a constructive and collaborative manner.
- A party that is not represented by an RICS member or other property professional must be advised about the existence of the Code and its supplemental guide and must be recommended to obtain professional advice.
- The agreement as to the lease terms on a vacant possession letting must be recorded in written heads of terms, stating that it is “subject to contract” and summarising as a minimum the position on a number of aspects listed in the Code. They include such matters as are typically included in a set of heads of terms, but this list provides clarity as to what must be included.
- At a lease renewal or extension, the heads of terms must comply with the list except for terms that are stated to follow the tenant’s existing lease, subject to reasonable modernisation.
- The landlord or its letting agent will be responsible for ensuring that heads of terms complying with the Code are in place before the initial draft lease is circulated.
Those requirements underpin the Code’s objectives of improving the quality and fairness of initial negotiations on lease terms and promoting the issue of comprehensive heads of terms, that should make the legal drafting process more efficient.
The rest of the Code (paragraphs 2-13) comprises good practice points on key parts of lease negotiation. Those paragraphs are not mandatory and the RICS recognises there may be exceptional circumstances in which it is appropriate for RICS members to depart from the provisions and in such situations RICS may require the member to justify their decisions and actions.
Compared to the previous draft of the Professional Statement, the new draft is less interventionist in the commercial lease bargain that will be made between the prospective landlord and tenant. For example, the Code now states that where the landlord proposes that the tenant’s rights of renewal under the Landlord and Tenant Act 1954 are to be excluded, the tenant should be notified at the outset in order to obtain early professional advice as to the implications. The previous draft referred to the circumstances in which leases should be “contracted out”.
The Professional Statement includes a template heads of terms reflecting the Code’s sections. Many will find this helpful, but its usage is not mandatory. For landlords or agents who wish to use their own form of heads of terms, the Statement includes a checklist, which should be used to capture the minimum information required by the Code. There is a supplemental guide providing helpful information to landlords and tenants, although the information in the guide does not have regulatory implications.
While the Statement’s regulatory implications are only relevant to RICS regulated surveyors and firms (and, therefore, will not impact on those not regulated by the RICS), it is likely that the Statement will be significant for the property industry more generally, especially in relation to heads of terms.
The consultation closes at midnight on 5 May 2019.