The New Commercial Lease Code

Profession:Herbert Smith
 
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The new Code of practice for commercial leases in

England & Wales was Launched on 22nd April 2002 - What does it mean to

you?

Background

The Code is a voluntary Code. It replaces the first Code

launched in 1995.

The 1995 Code was (like the new Code) produced by a cross-industry

group representing landlords, tenants and the professional advisors, and

it aimed to promote flexibility and openness in the landlord

and tenant relationship on a voluntary basis - rather than having

it policed by law. At that time many tenants were disappointed with the

government's decision not to intervene, particularly on the issue of

upward only rent reviews.

The DoE said that it would lead by example whenever government

departments took or let accommodation and that it would be monitoring the

effect of the Code on the property market.

The 1995 Code was largely ignored.

Successive governments have been concerned about the inequality of

bargaining power between landlords and tenants. Tenants were, on the

whole, disadvantaged when negotiating leases. Although market forces have

produced some changes sought by the government, such as shorter leases,

and the use of break clauses, the changes did not satisfy the government.

The government threatened legislation to regulate leases (with particular

reference to upward only rent reviews) and, under this threat, the

property industry revised the voluntary 1995 Code finding compromises

acceptable to the different sides of the property industry.

This time the government has made it known that it intends to

monitor the effectiveness of the Code over the next two years and, if the

Code is not adopted voluntarily, legislation will be considered.

Take-up

It is difficult to judge the take-up of the Code -

not least because neither the RICS or the BPF maintain a list of the

companies who have publicly subscribed to the Code.

Certain of the big players are known to have subscribed to the Code.

Although it is early days, it is unclear whether, despite the statement by

the working party that the Code reflects ìbest practiceî, the Code

will find favour with the property industry.

Market forces may push landlords and tenants towards the

recommendations contained in the Code but it will need a clear effort to

persuade the property industry at large that the Code is a ìgood thingî.

Monitoring the Code

The DTLR is to set up and operate a

complaints system for non-compliance. The RICS and the BPF have both

devised forms that they will encourage their members to complete with a

view to judging the take-up of the Code. They need to agree between

themselves (and the Law Society) as to how the forms will be used.

Main messages of the

Code

Flexibility - in negotiations landlords should, where

possible, offer tenants a choice of terms including term of lease,

upward or downward rent reviews, repairing liability.

Tenant awareness - tenants should be encouraged to take

professional advice on property issues at an early stage both in

negotiations and during the term of the lease.

Openness - both parties to the lease should deal with each

other constructively, courteously, openly and honestly.

Negotiation of new leases

The key recommendations are as follows:-

Duration of the lease - landlords should consider

offering tenants the choice and length of the term, including break

clauses where appropriate and with or without protection of the Landlord

& Tenant Act 1954.

Where alternative lease terms are offered, different rents should be

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