The Code for Leasing Business Premises

in England and Wales 2007

www.leasingbusinesspremises.co.uk

Leasing Business Premises: Occupier Guide

This document is one of three component parts of the Code for Leasing Business Premises in England and Wales 2007
Copyright © The Joint Working Group on Commercial Leases, 2007. Any of the Code documents may be reproduced (other than for commercial publication)
without the Group’s consent, but only in full, without amendment, and acknowledging the Group’s copyright.

Introduction
A business lease is a legally binding contract between the legal owner (Landlord) and the occupier (Tenant).
Failure by either party to comply with the terms of the agreement could result in court action.
The 2007 Code for Leasing Business Premises (‘the Lease Code’) provides a framework within which a
prospective tenant can reasonably expect a landlord to operate. As a prospective tenant, you should not assume
that a landlord complies with the Lease Code. The Lease Code does not provide all of the protection you need
for your business in leasing premises.
Sometimes the Landlord is also the tenant of another owner. This may restrict the flexibility of terms the Landlord
can offer. The Landlord should always state in advance if this is so and provide a copy of the current lease.
If it is proposed to buy an existing lease (assignment) from someone else, be aware that, though parts of this
Occupier Guide may help in interpreting some of the terms of the lease, there may be many additional liabilities.
Professional advice from a qualified surveyor and a lawyer should be sought.

In this document the following terms have been used:

Landlord This is the owner of the property or the person owning an existing lease of the property
Tenant This is the occupier of the property or the person paying rent to a landlord (this Occupier Guide
assumes the tenant will be you)
Heads of Terms This is a summary of the agreement between the parties and is used to instruct lawyers to produce
the formal lease. Both the lease and the Heads of Terms should comply with the recommendations
of the Lease Code but the Heads of Terms will be superseded once the lease has been granted.

For more information on the Lease Code see Useful Links.

1 Lease negotiations You should know from the offer exactly what the property is.

You should expect the Landlord to make very clear exactly what you Tip 2
are being asked to agree.
Make sure the offer clearly shows the extent of the property,
You should be able to understand the total extent and duration of the with the boundaries clearly marked on plan and the floor area
cost and liability you will be taking on if you sign a lease based on the noted, together with all means of access, any access or areas
terms being offered by the Landlord. you must share with other occupiers, any limitation of hours of
use, any restrictions in the type of use, any legal or planning
Tip 1 limitations or obligations that come with the property.
Make sure you understand every term and condition in the
offer including the total cost until the lease ends and ask the You should also remember that, however good your relationship is or
Landlord or the Landlord’s representative to confirm in writing seems to be with the Landlord, the Landlord may sell to another party;
that the offer meets the Lease Code. the terms you agree and the lease you take on must reflect everything
you rely on to conduct and safeguard your business.

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If the Landlord demands a deposit, you should make sure you

Tip 3
understand the conditions under which it is held and the basis
Make sure the offer sets out clearly who the Landlord is, on which it will be returned to you. You should remember that this
together with any superior landlords, and assume that any is YOUR money that the Landlord is holding as a protection against
Landlord will sell his interest to someone else and that you will any failure on your part.
have to deal with the new owner.
Tip 6
You should request alternative terms if you are not happy with the Keep thinking of the deposit as your money and demand that
initial terms of the Landlord’s offer, always bearing in mind that interest on it is accrued at a fair rate. Ask the Landlord to
any variation (such as lease length, rent review terms – including make sure it is held in an account that belongs to you (escrow
frequency and basis – break options, etc) may change the level or stakeholder account) in case the Landlord becomes
of rent or other terms. insolvent. Throughout the term of the lease, make sure you
obtain statements from the Landlord to confirm that the money
Tip 4 is still in the account and that all interest earned has been paid
to you or, if required by the lease, has been held on your
Request written responses from the Landlord, where you expect
behalf within the account. Check that your deposit will be
to need to rely on them. Check that all the things which are
transferred to the new Landlord if the Landlord sells the
important to you and your business have been accurately
property to another owner.
written down in the Heads of Terms and documented in the
lease.

Tip 7
Make sure you know when and how you can get your deposit
2 Financial matters, rent deposits and guarantees back, such as when you no longer have an interest or have
satisfied agreed conditions.
The Landlord should provide full details of your expected costs
involved in leasing the property. This should include all personal
or company guarantees, security deposits or other bank guarantees. If you are asked to give a personal guarantee, you should avoid using
your home as security. You should be able to understand both when
Not all costs will be fixed at the time of agreeing the lease. You should and how the Landlord may call on your guarantee, and also what the
expect the Landlord to explain how any costs are calculated so that guarantee would actually cover.
you can understand the risks and make sure you can afford all of the
costs of leasing the property. Tip 8

Tip 5 Think of any guarantee as if it WILL be called on the first day of

the lease; what would be the personal consequences for you?
It may be helpful to use a checklist (such as that set out below) Can you afford it?
so that you can ask the Landlord to be explicit about costs and
obligations in the lease.

Cost Item Who pays? How much? What is the If this cost
How often? occupier’s is not fixed,
cost each what does it
year? depend on?

Rent e.g. Tenant

VAT

Rates

Service charges

Insurance

Utilities

Repairs/Dilapidations

Fitting out/Alterations

Total each year

Total lease cost

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3 Rent review from, say, sharing your space with a supplier or service provider
(for example, an outside cleaning company which you provide with
Your lease may contain provisions allowing the Landlord to change
its own cleaner’s cupboard)
the rent. The rules by which the rent can be changed should be clear
and understandable. It should be arranged that the Landlord cannot
Tip 13
simply impose a rental increase. The basis of rent review should be
to the market rent unless clearly stated otherwise. If you agreed Ask your Landlord to reflect the flexibility you require in the
increases fixed to an index, the basis should be a published, sharing provisions of the lease. This probably means you must
independent, authoritative source. not create a tenancy for your supplier.

If there is an open market rental value provision, it should specifically

exclude (or disregard) any improvements you make, other than as part Landlord’s written consent is likely to be required for subleases.
of an explicit obligation, or any value arising from your business. You
Tip 14
should also make sure there are controls in the event of disagreement
that will be referred to an independent expert or arbitrator to settle. Make sure your Landlord, including any superior landlords, is
required to give consent within a defined (and short) period of
Tip 9 time and that he is not allowed to refuse without good reason.
Check that you understand the basis on which the rent can be
changed. Can the rent go down as well as up? You should see
if the Landlord is prepared to allow upward or downward rent
Assignment (disposing of your existing legal interest
reviews and if not, you should consider asking for a break
in the whole premises)
option exercisable only by the tenant.

It is common for Landlords to require you to guarantee the lease

Your lease should include a provision allowing you to serve a rent once you have assigned it to a third party. The form of guarantee
review notice on the Landlord. If the Landlord does not initiate the (an Authorised Guarantee Agreement or AGA) usually makes you
rent review, think very carefully before deciding not to serve notice responsible, as a guarantor, for the lease obligations until your
on the Landlord as you may be responsible for paying interest on assignee (the person to whom you sold your lease) assigns the
any increase in rent above the original rent from the appropriate lease to another party.
rent review date until the review has been agreed.
Tip 15
Tip 10
Ask the Landlord to limit his requirement for an Authorised
Make sure that the interest rate on the difference is no higher Guarantee Agreement to those cases where your proposed
than bank base rate. Try to introduce a provision whereby the buyer (assignee) is financially weaker than you are at the date of
Landlord forfeits interest on the difference if he/she does not assignment. Ask the Landlord to include provisions that will
initiate the rent review process prior to the review date. allow you to cancel the Guarantee if defined conditions are met
and/or after an agreed period.

Tip 11
Avoid strict time limits in the rent review clause (other than Tip 16
referred to in Tip 10) – these could result in you losing the Try to agree alternative conditions to avoid you having to enter
ability to negotiate. into an Authorised Guarantee Agreement (for example, by
having the new tenant pay a rent deposit).

The Landlord should not impose any condition which requires you
4 Subletting and assignment to be in compliance with the lease at the time of assignment.
Subletting (creating a new lease of all or part of the property)
Tip 17
If your lease allows subletting, you should understand any limitations Try to make sure the only precondition for assignment is
(in terms of the amount of space, the use and the rent you can charge obtaining the Landlord’s consent in writing and that the
and the nature of the subtenant you can sublet to). Landlord may not unreasonably withhold or delay giving his
It is usual for Landlords to insist that subleases are granted outside consent.
the protection of the Landlord and Tenant Act 1954 and on similar
terms to your lease.

Tip 12
Try to make sure you are NOT required to sublet at the same or
higher rent than you pay. You should not be limited other than
by reference to the market rent at the time of the subletting.
Be careful that restrictive subletting provisions do not prevent you

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5 Lease length, break clauses and renewals 6 Service charges

The Landlord should make clear the length of the lease, whether there You should expect the Landlord to be explicit in his offer about any
are any rights to break the lease and whether you will be entitled to service charges, including how these costs are calculated, what they
an extension of the lease on expiry (see section 11 below). cover (and don’t include) and the extent to which you will be obliged
to pay towards any capital improvements and long-term repairs or
Make sure that the length of the lease is appropriate for your business
replacements of structure, fabric or machinery and equipment.
needs; ask the Landlord to offer you a break option exercisable only
by the tenant (this will be you unless you have assigned your lease)
Tip 21
to give you the opportunity to cancel the lease at a time that suits
your business. Ask the Landlord whether he complies with the Service Charge
Code 2006, and ask for a clear estimate in writing of the likely
A right to break should allow you to walk away from the lease at
service charge costs for each year of the lease term (to include
a given time after informing the Landlord in writing. This should be
any known or planned capital costs).
conditional only upon having paid the rent due under the lease and
giving up occupation of the property, leaving behind no continuing
subleases. You may have other liabilities to fulfil, but these should not Tip 22
be used to invalidate the right to break.
As you are likely to be responsible for the repairs to a
Tip 18 proportionate part or the whole of the building you should
satisfy yourself that there are no major repairs required at the
Be careful that it is only the principal rent and not any other beginning of your lease or that are likely shortly afterwards.
sums (such as service charges) that must be paid in cleared
funds before the break date.
Tip 23
When your lease ends, whether by expiry or by exercise of a break Make sure the Landlord cannot charge you a greater proportion
option, you will be liable to the Landlord for any sums due and for any of cost when he has other space vacant in the estate or
repairs you should have carried out during the lease (dilapidations). building.

Tip 19
When granting any subleases or in sharing possession with any
suppliers or business partners, always make sure your 7 Repairs
agreement with them expires on a date before your right to
UNLESS you specifically agree at the time of taking the lease to carry
break, AND that you have not given them any rights to stay in
out works or to reinstate the property to its original state, check that
the property beyond the term of your agreement with them.
the lease does not require you to put the property into a better
condition than when you take the lease.
Be sure that you understand what notices you would be required
to serve on the Landlord to end the lease, and how and when these Tip 24
should be served.
It is worthwhile either getting a formal photographic schedule of
The Landlord and Tenant Act 1954 gives you the right to extend your condition carried out by a firm of surveyors or taking plenty of
tenancy when your lease runs out. photographs on or before taking the lease to record the
condition at the beginning of the lease.
Unless both you and the Landlord have agreed (in the correct
procedure) that the lease is to be excluded from the relevant sections
of the Landlord and Tenant Act 1954, you will be entitled to renew Tip 25
your lease unless your Landlord can prove certain specific
circumstances, which include redeveloping the property or occupying If you take the photographs yourself, make sure you get the
the space himself. photographs dated and witnessed and keep a set with your
lease documents. If you produce your own video schedule of
You should make sure you understand the options available to you condition, send the Landlord a copy by Recorded Delivery Post.
when your lease expires. Take professional advice to make sure all
notices are properly served and that your interests are protected.
You should bear in mind if you buy an existing lease (take an
assignment of someone else’s lease), that the condition of the
Tip 20
property when you take it may be poorer than it was at the beginning
Take professional advice at least six months before the end of of the lease. You may be required to put the property back into its
the lease and on receipt of any notice from the Landlord under original condition so it is worth taking professional advice.
the Act.

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8 Alterations and changes of use The lease should provide for the Landlord’s policy to be used to
repair or rebuild the property unless the insurance is invalidated by
Your lease will limit the use of the property to a specified purpose
anything you do, in which case you may be liable for the
(for example, B1 (Offices). The lease will usually put the responsibility
reinstatement.
on you to check that your proposed use complies with any planning
consent.
Tip 30

Tip 26 Remember to inform the Landlord and his insurer if you intend
to change the way you use the property; let them know if you
Make sure the Landlord provides you with all relevant
are storing any hazardous chemicals in the context of your
information and, if possible, confirms to you that your use
business or if you propose to leave the property vacant and
complies with his planning consent.
unattended at any time. Ask the Landlord to ensure inclusion of
such activities in the insurance policy and to consult you over
The lease may be quite restrictive in terms of any signage and any any changes in the insurance policy terms.
alterations you are permitted to make. Before you enter into the lease,
you should make sure you are permitted to carry out any works your
business needs. Tip 31
Check whether your alterations or improvements would be
Tip 27
covered under the Landlord’s policy.
Check what you need to do to the property in order to trade.
Make sure the Landlord agrees in writing any changes you
intend to make at the beginning of the lease period. Check
whether you will be required to remove your alterations at the
end of the lease. 10 Tenant’s defaults and applications for consent
Tenant default
The Landlord should be required to give his consent within
a reasonable time period (say 21 days) and should not be able The lease forms a legal contract between you and your Landlord.
to refuse your proposed alterations without good reason. Any breach of contract may have serious consequences and you
should take care to understand your obligations and steps the
Tip 28 Landlord may take against you and, if applicable, your guarantors,
including Court action.
Make sure your lease allows you to make non-structural
alterations except where the Landlord can demonstrate it would The laws relating to Landlord and Tenant relationships are
affect the operation of the building. You should remember that complex and you should seek professional advice so you are
you should notify the Landlord of any non-structural alterations clear on your obligations and rights.
you do make.
A fair lease is one which allows you enough opportunity to fix any
problems (without loss to the Landlord) before any legal action
You should be aware of statutory requirements (such as Construction is taken.
(Design and Management) Regulations 2007 (CDM) that you must
comply with when carrying out any works or alterations to the Tip 32
Property. The CDM regulations require you to keep full and detailed
formal records and your Landlord will require you to maintain these Check that the Landlord must let you know you are in breach
records throughout the lease. and give you a reasonable opportunity to remedy the breach
before taking legal action against you.

You may find that you have failed or forgotten to carry out some
9 Insurance
obligations under your lease. It is usually best if you are able to carry
You may be required to reimburse the Landlord for his insurance out these obligations yourself. It may be better sometimes to
premiums, and the Landlord should tell you what commission approach the Landlord and negotiate a reasonable payment to have
payments (if any) he receives. the Landlord carry out the obligations after your lease has expired.

Tip 29 Tip 33
Ask for a copy of the Landlord’s insurance policy and before Try to stay on good terms with the Landlord. This should help
signing the lease, check with alternative insurers that you are make any situation easier to handle and should allow you to run
getting value for money for the given level of premium and that your business without unnecessary outside interruptions.
the insurance company is reputable. Ask him to confirm to you
that he has no intention of changing the scope (and, therefore,
The remedy for a breach of your agreement may range from the
the cost and nature) of the insurance cover.
Landlord sending in bailiffs, who may seize goods to the value
of the breach, to the Landlord taking back the property from you
(‘Forfeiture’). You should note that this would not take away your
liability to pay arrears of rent.

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Tip 34 Useful Links

Make sure the ‘Forfeiture’ provisions in the lease are clear; they The Code for Leasing Business Premises
in England and Wales 2007
should allow you enough time to pay, and should allow you to
www.leasingbusinesspremises.co.uk
restructure your business without necessarily making your lease
vulnerable to forfeiture.
Bills before Parliament
www.publications.parliament.uk/pa/pabills.htm
The Landlord may try to forfeit your lease by locking you out of the
Property or by obtaining a court order. In either case you can apply Building Regulations
to the Court to give you time to put matters right or to pay what you www.communities.gov.uk/index.asp?id=1130474
owe. Seek urgent professional advice in that situation.
Health and Safety Executive
New legislation often brings new obligations for owners and www.hse.gov.uk
occupiers of property. Leases often require tenants to comply with
statute at their own cost. You should ensure your obligations under Service Charge Code
the lease are proportionate to the length and terms of your lease and www.servicechargecode.co.uk
you should take professional advice and make your own estimate of
any expected costs. You should research possible new Regulations Town Planning (Link Site)
that could affect your occupation and your business. www.ukplanning.com/ukp/index.htm
This provision should not be taken lightly and you should ensure that
Uniform Business Rates
the Property is in compliance with existing regulations (for example,
www.voa.gov.uk
with Disability Discrimination Acts, Town and Country Planning Acts,
Health & Safety Acts or Environmental Protection Acts) when you
take the lease. Organisations Endorsing the Code
Tip 35 Association of British Insurers
www.abi.org.uk/
Ask the Landlord to confirm to you in writing that the Property
complies with all regulations (some of which are “Statutory British Council for Offices
Instruments”) before entering into the lease. www.bco.org.uk

British Property Federation

Tip 36 www.bpf.org.uk
Stay aware of potential new legislation and Regulations that will
affect occupiers of business premises (many trade bodies and British Retail Consortium
professional firms send out newsletters which can help to www.brc.org.uk
identify significant changes). Identify the costs and take
Communities and Local Government
professional advice to ensure you comply where you are
www.communities.gov.uk
obliged to by your lease.
Confederation of British Industry
www.cbi.org.uk

Applications for consent CoreNet Global

www.corenetglobal.org.uk
You will need to make applications to the Landlord during the lease,
for example, if you intend to carry out alterations (see Section 8) The Forum of Private Business
or if you propose to sublease or assign your lease (see Section 4). www.fpb.org.uk
The lease should specify that the Landlord may not unreasonably
withhold or delay his consent. Federation of Small Businesses
www.fsb.org.uk
The Landlord’s duty to respond only applies from when he has
received from you adequate information about the proposed
Investment Property Forum
alterations or about the proposed assignee or subtenant and full
www.ipf.org.uk/
details of the proposed transaction.
The Law Society of England and Wales
Tip 37
www.lawsociety.org.uk
Check what information will be required before making an
application and make sure you are able to give the Landlord full The Royal Institution of Chartered Surveyors
details. Ask the Landlord in advance what other consents he www.rics.org
may have to get and ask for assurances that this will not add
any further delay to the approval process. Welsh Assembly Government
www.wales.gov.uk/index.htm

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The Code for Leasing Business Premises is endorsed by the following organisations:

Association of British Insurers www.abi.org.uk

The Forum of Private Business www.fpb.org.uk

British Council for Offices www.bco.org.uk

Federation of Small Businesses www.fsb.org.uk

British Property Federation www.bpf.org.uk

Investment Property Forum www.ipf.org.uk

British Retail Consortium www.brc.org.uk

The Law Society of England and Wales www.lawsociety.org.uk

Confederation of British Industry www.cbi.org.uk

The Royal Institution of Chartered Surveyors www.rics.org

Communities and Local Government www.communities.gov.uk

CoreNet Global www.corenetglobal.org.uk Welsh Assembly Government www.wales.gov.uk/index.htm