Model Commercial Lease: Compliance with the Code for Leasing Business Premises (2007), Study notes of Business

Download Model Commercial Lease: Compliance with the Code for Leasing Business Premises (2007) and more Study notes Business in PDF only on Docsity! 1 Model Commercial Lease Compliance with the Code for Leasing Business Premises (2007) This document has been prepared by the MCL working group to assist users of the Model Commercial Lease. It has no legal status and the Conditions of Use of the MCL apply to it. Provision in Code Model Commercial Lease 1 Lease negotiations Landlords must make offers in writing which clearly state: the rent; the length of the 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; and the VAT status of the premises. Not appropriate for inclusion in the lease Landlords must promote flexibility, stating whether alternative lease terms are available and must propose rents for different lease terms if requested by prospective tenants. Not appropriate for inclusion in the lease 2 Rent deposits and guarantees The lease terms should state clearly any rent deposit proposals, including the amount, for how long and the arrangements for paying or accruing interest at a proper rate. Tenants should be protected against the default or insolvency of the landlord. Covered in the rent deposit deed State clearly the conditions for releasing rent deposits and guarantees. Will need to be drafted specifically if relevant 3 Length of term, break clauses and renewal rights The length of term must be clear. Compliant The only pre-conditions to tenants exercising any break clauses should be that they are up to date with the main rent, give up occupation and leave behind no continuing subleases. Disputes about the state of the premises, or what has been left behind or removed, should be settled later (like with normal lease expiry). Compliant The fall-back position under the Landlord and Tenant Act 1954 is that business tenants have rights to renew their lease. It is accepted that there are a number of circumstances in which that is not appropriate. In such cases landlords should state at the start of negotiations that the protection of the 1954 Act is to be excluded and encourage tenants to seek early advice as to the implications. Not appropriate for inclusion in the lease 2 4 Rent review Rent reviews should be clear and headline rent review clauses should not be used. Compliant Landlords should on request offer alternatives to their proposed option for rent review priced on a risk-adjusted basis. For example, alternatives to upward only rent review might include up/down reviews to market rent with a minimum of the initial rent, or reference to another measure such as annual indexation. Where landlords are unable to offer alternatives, they should give reasons. Not appropriate for inclusion in the lease Leases should allow both landlords and tenants to start the rent review process. Compliant 5 Assignment and subletting Leases should: • allow tenants to assign the whole of the premises with the landlord’s consent not to be unreasonably withheld or delayed; and Compliant • not refer to any specific circumstances for refusal, although a lease would still be Code compliant if it requires that any group company taking an assignment, when assessed together with any proposed guarantor, must be of at least equivalent financial standing to the assignor (together with any guarantor of the assignor). Compliant Authorised Guarantee Agreements should not be required as a condition of the assignment, unless at the date of the assignment the proposed assignee, when assessed together with any proposed guarantor: • is of lower financial standing than the assignor (and its guarantor); or • is resident or registered overseas. For smaller tenants a rent deposit should be acceptable as an alternative. Landlord is entitled to require an Authorised Guarantee Agreement and/or a rent deposit where it is reasonable to do so If subletting is allowed, the sublease rent should be the market rent at the time of subletting. Compliant Subleases to be excluded from the 1954 Act should not have to be on the same terms as the tenant’s lease. Compliant 6 Service charges Landlords must, during negotiations, provide best estimates of service charges, insurance payments and any other outgoings that tenants will incur under their leases. Not appropriate for inclusion in the lease Landlords must disclose known irregular events that would have a significant impact on the amount of future service charges. Not appropriate for inclusion in the lease Landlords should be aware of the RICS 2006 Code of Practice on Service Charges in Commercial Property and seek to observe its guidance in drafting new leases and on renewals (even if granted before that Code is effective). Landlord must take parts of the Service Charge Code into account (Sch 3, Part 2) although this refers to the current version of the Code