A new commercial lease code in the offing?

Posted: 03/05/2019

After almost a year considering the responses to its first draft, the Royal Institution of Chartered Surveyors (RICS) has issued a new version of its Professional Statement Code for Leasing Business Premises in England and Wales 2019. Clients may be interested to know what is proposed, even though we have no idea when it might come into force. 

Baldly, the old Commercial Lease Code (which has been around since 2007, was entirely voluntary and never really took off) will be replaced by this RICS Professional Statement. It aspires to be the benchmark of good market practice for the grant and renewal of commercial leases and encourages landlords to adopt its principles (which it says are supported by the Government). Alongside the code itself, there is a guidance note which seems to act as a cross between a legal text book and a guide for novice tenants to the pitfalls of taking a lease, accompanied by a strong steer towards taking professional advice. This guide is not as user friendly as the eye-catching, plain English ’occupier guide’ which is part of the 2007 Code.

The importance of conversion to a Professional Statement is that all RICS members must observe its mandatory requirements and will need a compelling reason to depart from its other ’good practice’ principles. Failure to do so may lead to disciplinary action or support a claim that they have been negligent. Surveyors who are RICS accredited will feel they must steer their landlord clients towards compliance with the new code, yet there are several principles in it which landlords may dislike (such as Principle 1.5, which says it is good practice to aim for a lease that achieves a ’fair balance’ between the parties (softened a little by a reference to their respective commercial interests).

Can a landlord choose to ignore the new code (in whole or part) and instruct its surveyor accordingly, just as it could do with the old code? If it can, what is the likely outcome? The answers are:

• landlords are not directly bound by the Practice Statement (though in-house RICS surveyors will be) so they are still free to determine the commercial terms of their deals and how their leases will be drafted
• solicitors are not bound by the Practice Statement, so they are free to draft the documents in line with the client’s instructions, even if some of the provisions do not comply with the code
• RICS surveyors are bound by the Practice Statement (so must comply with the mandatory sections or refuse to act) but should be able to use express client’s instructions as a good reason for non-compliance with the ’best practice’ sections. If they are nervous about this defence they might refuse to act. At very least they may want to make it very clear to the prospective tenant, early on, that the deal is not code-compliant
• non RICS surveyors/letting agents are not bound by the Practice Statement so can act in accordance with client’s instructions

The mandatory requirements have been pared back and most are not objectionable: negotiating in a ’constructive and collaborative manner’, telling unrepresented other parties about the code, recommending they seek professional advice and using detailed heads of terms. We will look at these in subsequent articles.

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