The Code for Leasing Business Premises was introduced in 2007. It replaced two earlier versions which had largely been ignored by the property industry.

All the evidence is that the 2007 Code is being far more widely implemented than its predecessors. However, the commercial property market is now radically different from 2007 and it could be argued that current market conditions have done far more to improve the negotiating position of Ts than any voluntary Code. Be that as it may, the Code remains an extremely useful starting point for negotiations – especially for Ts. The key points include:

break clauses: the Code says that the only preconditions to T exercising a break clause should be that the basic rent is paid up-to-date; that T gives up occupation of the premises; and that there are no continuing sub-leases. This simplification of the ability to exercise a break clause is intended to avoid Ts being caught out by minor technicalities (eg not having painted the premises according to the correct timetable). The intention is that disputes about the state of the premises, or what is being removed or left behind, should be settled after the break right has been exercised. The key point is that a breach of covenant by T should not prevent the break clause being exercised (since either side can still claim damages for any breach);

assignments: the Code recommends that an Authorised Guarantee Agreement (AGA) should not be required as a condition of an assignment, unless the assignee is of ‘lower financial standing’ than the assignor, or if the assignee is resident or registered overseas. Whilst ‘lower financial standing’ is not defined, it has become a standard T amendment that L should only be able to require an AGA ‘where reasonable’. Needless to say, the absence of an AGA potentially reduces L’s options in the event of T’s failure, and that is perhaps more of an issue for Ls in the 2009 market than it was in 2007;

subletting: the Code says that the sublease rent should be the market rent at the time of the subletting. This followed a 2005 British Property Federation declaration to end the practice of requiring a sublease’s rent to be higher of the passing rent and the current market rent. In practice, the terms of the Code now reflect market reality;

alterations: the Code recommends that L’s control over alterations, and changes of use, should not be any more restrictive than is necessary, to protect the value of L’s reversion (and any neighbouring property). L’s consent should not be required for internal non-structural alterations, unless those alterations could affect services or systems in the building. Instead T should simply have to notify L of any internal non-structural alterations. Reinstatement of any alterations at the end of the term should only be required ‘where reasonable’ (with the Code requiring L to notify T of its requirements for reinstatement at least six months before the end of the term). Even more prescriptive is the suggestion that L should be required to give consent to alterations within a ‘reasonable time period’ (with 21 days being suggestedas reasonable).

At the end of the day, supply and demand will dictate what lease terms will be. But, in the current market, T should expect even more favourable terms than those suggested in the Code. For an introduction to the Code see article in [2009] 236 PLJ 16.