Partner Article

Commercial Leases - Revised Code of Practice Imminent?

With Watson Burton LLP Law FirmFollowing the Government’s concerns that small business tenants were being poorly informed about property matters, the Code of Practice for Commercial Leases in England and Wales (‘the Code’) was published in April 2002. The Code recommended that commercial property owners should, where possible, provide a choice of leasing options to their prospective tenants. Subsequent research, published in 2005, showed that many landlords were not offering their tenants sufficiently flexible terms to suit their business needs. Today, many small-business tenants remain concerned that restrictions on the ability to assign or sublet leases are causing difficulties for their businesses. In addition to the apparent inflexibility of the leasehold market, the Landlord and Tenant (Covenants) Act 1995 (‘the Act’) has imposed a number of restrictions on the assignment of leases and has, to an extent, galvanised landlords’ opinion on the need to ‘lock’ tenants into Authorised Guarantee Agreements (AGAs). Such agreements can make it difficult for tenants to dispose of properties which they no longer need or cannot afford to retain. For leases affected by the Act, an outgoing tenant can be required under the terms of an AGA to guarantee the obligations of the party to whom he is assigning the lease (‘the Assignee’). Such guarantees are potentially onerous and, according to the Code, should only be imposed on tenants if it is necessary to protect the landlord’s interests, for example, where the Assignee is of lower financial standing than the present tenant.Amid concerns that a large number of small-business tenants are unlikely to have previous experience of leasing, combined with an apparent reluctance to take professional advice, the Government is considering whether further legislative changes and/or a revised Code of Practice may, ultimately, be required. In the meantime, small-business tenants are advised to carefully consider future business leases in order to be certain of their position in relation to any guarantee of an assignee’s obligations. Help may be on the way but, for the moment at least, concerned tenants are advised to seek professional advice.If you have any questions in relation to this article, please contact Guy Barr at Watson Burton LLP.

This was posted in Bdaily's Members' News section by Ruth Mitchell .