05-07-2007
A Coded Warning
The Government is pinning its hopes on a new code for leasing business premises to strike an atmosphere of trust and co-operation between commercial landlords and their tenants.
Although there was a previous code in existence, there is acknowledgement that it did not have widespread industry support. Although the new code remains voluntary the Government has made it clear that the property industry could face future legislation if it does not use the code to self-regulate commercial leases.
The Government argues that the new code represents an opportunity for landlords and tenants to work together and that greater trust between owners and occupiers should speed up transactions and ensure there is less room for conflict. In an ideal world landlords will arguably have shorter voids and tenants will be able to begin their fit out works and start trading from the premises more quickly.
However in reality many landlords will find parts of the new code difficult to swallow, seeing the code as being more tenant-friendly than the current property "norm".
The biggest changes are found in the code requirements for a commercial lease. These include rent reviews. Alternatives to upward only rent reviews such as indexation or a threshold review should be made available on request.
The new code strictly outlaws pre-conditions for break clauses, arguing that it is in no-one's interest for a property to remain vacant while solicitors argue whether or not terms have been complied with.
Another change is that consent should not be needed for internal non-structural alterations and reinstatement of alterations can only be required where reinstatement is reasonable. The landlord needs to give at least six month's notice if they do require reinstatement.
There are also fewer “hoops” for tenants to jump through should they wish to assign or sublet their lease.
The code suggests that a tenant should not be expected to pay for damages caused by an uninsured risk, for example, terrorism.
As for consents, the code argues that these need to be considered and entered into within a sensible time frame.
The Government has suggested that tenants will be able to differentiate between a landlord who complies with the new property code and those who don’t.
It remains to be seen whether non-compliance with the code will deter prospective tenants from entering into relationships with certain landlords.
Julian Pyrke is a partner within BPE's 20-strong commercial property team. Landlords or tenants wanting advice on the new code should contact him on 01242 248 214 or email julian.pyrke@bpe.co.uk
Although there was a previous code in existence, there is acknowledgement that it did not have widespread industry support. Although the new code remains voluntary the Government has made it clear that the property industry could face future legislation if it does not use the code to self-regulate commercial leases.
The Government argues that the new code represents an opportunity for landlords and tenants to work together and that greater trust between owners and occupiers should speed up transactions and ensure there is less room for conflict. In an ideal world landlords will arguably have shorter voids and tenants will be able to begin their fit out works and start trading from the premises more quickly.
However in reality many landlords will find parts of the new code difficult to swallow, seeing the code as being more tenant-friendly than the current property "norm".
The biggest changes are found in the code requirements for a commercial lease. These include rent reviews. Alternatives to upward only rent reviews such as indexation or a threshold review should be made available on request.
The new code strictly outlaws pre-conditions for break clauses, arguing that it is in no-one's interest for a property to remain vacant while solicitors argue whether or not terms have been complied with.
Another change is that consent should not be needed for internal non-structural alterations and reinstatement of alterations can only be required where reinstatement is reasonable. The landlord needs to give at least six month's notice if they do require reinstatement.
There are also fewer “hoops” for tenants to jump through should they wish to assign or sublet their lease.
The code suggests that a tenant should not be expected to pay for damages caused by an uninsured risk, for example, terrorism.
As for consents, the code argues that these need to be considered and entered into within a sensible time frame.
The Government has suggested that tenants will be able to differentiate between a landlord who complies with the new property code and those who don’t.
It remains to be seen whether non-compliance with the code will deter prospective tenants from entering into relationships with certain landlords.
Julian Pyrke is a partner within BPE's 20-strong commercial property team. Landlords or tenants wanting advice on the new code should contact him on 01242 248 214 or email julian.pyrke@bpe.co.uk
