Code for Leasing Business Premises 2020: What UK Tenants Should Know

Negotiating a commercial lease can feel daunting - there’s a lot to read, plenty of fine print, and big commitments around rent, repairs and exit rights.

The good news is there’s a framework designed to make lease negotiations more transparent and fair: the Code for Leasing Business Premises (England and Wales) 2020. If you’re taking on a shop, office, studio or warehouse, understanding this Code will help you negotiate better terms and avoid nasty surprises later.

In this guide, we’ll explain what the Code is, who it applies to, the key points that should appear in your heads of terms, and how to use it to push for clearer, more balanced lease clauses. We’ll also flag the core UK laws that still apply regardless of what the Code says - so you’re protected from day one.

What Is The Code For Leasing Business Premises 2020?

The Code for Leasing Business Premises (England and Wales) 2020 is a professional statement published by RICS (the Royal Institution of Chartered Surveyors). It took effect on 1 September 2020.

In simple terms, it sets out good practice for negotiating commercial leases. It requires RICS members (and regulated firms) to follow mandatory requirements during negotiations and strongly encourages landlords and agents to adopt fair, transparent terms, especially for small business tenants.

It isn’t legislation - the Code doesn’t override the law or your lease - but it does influence how heads of terms are prepared and how key issues (like rent review, break clauses and assignment) should be handled. If the landlord’s surveyor is an RICS member, they’re expected to comply with the Code’s mandatory parts, including providing comprehensive, written heads of terms and highlighting any “unusual” or onerous provisions early.

Bottom line: while the Code is not law, it gives you a helpful checklist and some leverage to ask for clearer, fairer lease terms before you sign.

Does The Code Apply To Your Lease Negotiations?

The Code applies to leasing of most business premises in England and Wales - including shops, offices and industrial units - where the parties are negotiating a new lease or lease renewal. It does not directly apply to residential lettings or to agricultural tenancies.

Key points about scope:

• It covers new leases, lease renewals and lease re-gears (like extensions and variations).
• It applies to heads of terms, negotiations and the way information is provided to prospective tenants.
• RICS members must comply with the mandatory requirements. Even if your landlord isn’t an RICS member, many agents still use the Code as best practice.

If you’re in Scotland or Northern Ireland, the Code isn’t directly in force, but its principles are still useful when negotiating. For short-term or flexible arrangements, you might use a licence rather than a lease - in that case, a clear notice and renewal framework is still important.

What Must Be In Your Heads Of Terms Under The Code?

The Code pushes for detailed, written heads of terms (HoTs) before any lease is drafted. This is your negotiation blueprint - don’t rush it. The more clarity here, the smoother (and cheaper) the legal process will be.

Under the Code, HoTs should clearly state, at a minimum:

• Parties and Premises: The full names of landlord/tenant, the address, and the exact extent of the premises (including any external areas or shared spaces).
• Term: The lease length, any options to renew, and whether there’s a rent-free period or phased rent.
• Break Rights: Whether you or the landlord can break early, the break date(s), and conditions to exercise the break (e.g. rent paid up to date, vacant possession).
• Rent: The starting rent, payment frequency, and any turnover rent features if relevant.
• Rent Review: Review frequency and method (e.g. open market, index-linked, fixed uplifts).
• Deposit/Guarantee: Whether a rent deposit or guarantor is required, and the conditions for return/release.
• Service Charge/Insurance: What services you’ll pay for, caps (if any), and insurance responsibilities.
• Repairs/Condition: Whether it’s full repairing and insuring (FRI), whether you’ll accept a schedule of condition, and who deals with reinstatement of alterations.
• Use/Alterations/Signage: The permitted use, change-of-use flexibility, and rules for fit-out or signage.
• Assignment/Subletting: Whether you can transfer the lease or sublet, and any conditions.
• Statutory/Planning Matters: Any pre-conditions like planning permission, licensing or fit-out approvals.
• Costs: Who pays whose legal and surveyor’s costs.
• Special Conditions: Any unusual or onerous terms should be highlighted (the Code expects openness here).

Ask for the HoTs to explicitly flag any clause that could significantly disadvantage you (e.g. “upward-only” rent review or a break clause with complex conditions). If something is left vague in the HoTs, it often becomes a sticking point later - or worse, it’s drafted in the landlord’s favour by default.

Key Lease Clauses The Code Wants Landlords To Address Fairly

Here are the provisions the Code focuses on, and what you should watch for when negotiating.

1) Lease Length, Break Clauses And Renewal

The Code encourages clarity on term and break rights. If you’re a growing business, a tenant break option gives you flexibility. Keep break conditions simple and achievable - typically, paying the basic rent up to the break date and giving back vacant possession. Try to avoid conditions tied to “material compliance” with all covenants, as that can be too uncertain.

For renewals, remember that the Landlord and Tenant Act 1954 may give you security of tenure unless the lease is “contracted out”. If the landlord wants to exclude the 1954 Act, you must follow a formal contracting-out process before you sign. If timing and roll-overs are a concern, make sure you understand how rolling tenancies and notice periods work at the end of a fixed term.

2) Rent, Rent Reviews And Incentives

HoTs should spell out rent, any incentives (rent-free or capital contributions) and the rent review mechanism. “Upward-only” market reviews are common - the Code says they should be clearly labelled. If you prefer certainty, you can request index-linked reviews (e.g. RPI/CPI) with caps and collars.

During negotiations, it’s reasonable to ask for a schedule showing how rent increases could play out across the term. That way, you can stress-test affordability.

3) Repairs, Service Charges And Condition

On FRI leases, tenants often take on significant repair obligations. If the premises aren’t new (or recently refurbished), ask for a photographic schedule of condition and limit your obligations to keeping the premises in “no worse condition” than at commencement.

For service charges, push for transparency, exclusions for capital costs (unless they reduce overall costs or are amortised) and, where possible, a cap. The Code expects landlords to be clear about what’s included - especially in multi-let buildings.

4) Use, Alterations And Fit-Out

The Code supports reasonable flexibility on use and alterations. If you need to fit out, agree in HoTs which items require landlord consent (which shouldn’t be unreasonably withheld or delayed) and whether reinstatement is required at the end of the term. Consider signage rights up front if your brand visibility is critical.

For high-street premises, check whether your planned use sits within Class E under the Use Classes Order (England). If planning is needed, build that into your conditions to avoid being stuck with a lease you can’t lawfully use.

5) Assignment, Underletting And Guarantees

Growth plans change. You may want to assign the lease or sublet part. The Code promotes reasonable alienation clauses - for example, allowing assignment to a suitable assignee (subject to standard references) and avoiding automatic requirements for an AGA (authorised guarantee agreement) unless justified by covenant strength. If you intend to sublet part, make sure the lease expressly allows it and clarifies any rent apportionment or fit-out rules. If you’re exploring a partial underletting, a clear sublet agreement will be essential.

If later you need to transfer the lease entirely, understand the process and risks around assigning a lease, including any landlord consent requirements and release from liability under the Landlord and Tenant (Covenants) Act 1995.

6) Deposits, Insurance And Costs

Rent deposits and guarantor requirements should be proportionate and tied to risk. Agree the deposit amount, where it’s held, interest, and clear triggers and timescales for its return.

Make sure insurance responsibilities are understood: what the landlord insures, what you insure, and what happens if there’s damage - rent suspension, reinstatement timeframes, and termination rights if reinstatement isn’t feasible.

On legal and surveyor costs, many landlords ask tenants to pay both sides. The Code suggests costs are made clear up front. It’s reasonable to push for each party to pay their own costs on a new lease, or at least limit your exposure.

How The Code Interacts With UK Law You Can’t Ignore

The Code doesn’t replace the law - it sits alongside it. As a tenant, you should be aware of:

• Landlord and Tenant Act 1954: Provides “security of tenure” for business tenants unless expressly contracted out. If the lease is outside the Act, there’s a formal warning and declaration process to follow before signing.
• Landlord and Tenant (Covenants) Act 1995: Governs ongoing liabilities on assignment. Typically, an outgoing tenant can be asked for an AGA; ensure it’s proportionate and time-limited where possible.
• Planning and Use Classes: Your intended use must be lawful. Check planning, licensing and any restrictions in a superior lease.
• Health and Safety/Compliance: Fire safety, asbestos management, accessibility and other statutory duties may fall on the tenant (in whole or part). Understand what you’re taking on.
• Tax: Consider VAT (is the landlord opting to tax?) and whether stamp duty land tax (SDLT) is payable on the lease premium and/or rent.
• Rates and Utilities: Budget for business rates and utilities, and confirm who is responsible for meters and connections.

If you’re negotiating sector-specific premises (for example, hospitality), factor in industry nuances - you’ll often see additional provisions around fit-out, extraction and licensing. For restaurants and cafés, it’s well worth getting a sector-focused lease review so these points are caught early.

Practical Steps To Negotiate Your Lease Using The Code

Here’s a step-by-step approach you can follow to keep things clear, fair and compliant.

1) Start With A Detailed Heads Of Terms

Use the Code’s checklist to insist on full, written HoTs. Ask the agent to clearly highlight any unusual or onerous provisions. Confirm key points like rent review method, break conditions, service charge caps, and whether the lease is inside or outside the 1954 Act.

If you agree something “commercially” (e.g. a rent-free arrangement or turnover rent), make sure it’s recorded in the HoTs. Where the commercial deal needs a side arrangement (for example, handover timing or signage rights), consider documenting it in a short, clear Side Letter so it can be enforced.

2) Stress-Test The Numbers

Model your total occupation cost: base rent, business rates, service charge, insurance, utilities and dilapidations accruals. Then stress-test rent reviews and possible indexation. Clarity here helps avoid cashflow shocks mid-term.

3) Nail Down Repairs, Condition And Fit-Out

Agree a schedule of condition for any non-new space and tie your repairing obligation to that condition. For fit-out, list the works needing landlord consent and aim for a quick, reasonable consent process with deemed approval if there’s undue delay. Clarify reinstatement obligations at the end of the term to avoid unexpected dilapidations costs.

4) Build In Flexibility For Growth Or Exit

Even if expansion isn’t on your immediate horizon, protect future options. Negotiate a tenant break, reasonable assignment rights, and (if relevant) the ability to underlet part. If you later restructure, you’ll appreciate streamlined mechanics for assigning a lease to a group company, or updating terms with a simple Deed of Variation if the commercial deal changes.

5) Watch Out For Drafting Traps

Break clauses are a common pitfall. Keep conditions tight and binary (e.g. “pay basic rent to date and give vacant possession”). Avoid broad compliance conditions that can be used to frustrate a valid break.

Similarly, be careful with rent review definitions, service charge schedules and reinstatement clauses. Small wording choices can have big financial consequences.

6) Get The Lease Reviewed Before You Sign

Once the lease is drafted, get an experienced lawyer to review and negotiate the detail. A Commercial Lease Review picks up inconsistencies with the HoTs, highlights risks and proposes practical amendments to protect you. For retail and hospitality sites, a focused retail lease review can be invaluable.

7) Plan For The End From The Start

Think about how the lease ends - and what you want to happen next. Are you likely to renew, roll into a periodic tenancy or exit? Understanding rolling lease notice periods helps you avoid accidental holdover or unexpected liabilities. If you need to exit early, check your break clause deadlines now and diarise the critical dates.

FAQs: Common Questions Small Businesses Ask

Is The Code Legally Binding?

The Code itself isn’t law, but its mandatory parts bind RICS members, and many landlords follow it as best practice. More importantly, it gives you a clear benchmark to request fairer, more transparent terms. UK statutes like the 1954 Act remain legally binding regardless.

Can I Rely On The Heads Of Terms?

HoTs are usually “subject to contract”, which means they aren’t the final deal. However, they strongly influence the drafting. That’s why it’s crucial to agree detailed HoTs and then ensure the lease reflects them. If something material is missing from the HoTs, expect it to land in the landlord’s favour in the first draft.

What If We Need To Change The Deal After Signing?

You can often document changes via a Deed of Variation or, for certain operational items, a short side letter. Make sure any change is properly documented - informal arrangements are hard to enforce.

What If I Only Need Short-Term Space?

For very short, flexible arrangements, consider a licence rather than a lease. You’ll still want clear terms on use, fees and notice, and many of the Code’s transparency principles apply by analogy.

Key Takeaways

• The Code for Leasing Business Premises 2020 isn’t law, but it sets clear, pro-transparency standards that RICS members must follow - use it to push for fair, written heads of terms and to highlight onerous clauses early.
• Insist on detailed HoTs that cover term, rent and rent increases, break rights, service charge caps, repairs/condition, use/alterations, assignment/subletting, deposits/guarantees, insurance and costs.
• Keep break clauses simple and achievable; document fit-out approvals and reinstatement obligations clearly; and build in future flexibility to assign or sublet (with a robust sublet agreement if you underlet).
• Know the law that still applies: the Landlord and Tenant Act 1954 (security of tenure), the Landlord and Tenant (Covenants) Act 1995 (assignment liabilities), planning/use, compliance, tax, business rates and insurance responsibilities.
• Before signing, get a thorough Commercial Lease Review to iron out drafting traps and ensure the lease actually reflects the agreed HoTs.
• If the commercial deal changes later, formalise it properly with a Deed of Variation or an appropriate Side Letter so your position remains protected.

If you’d like help negotiating heads of terms or need a lease reviewed against the Code, our team can step in quickly. You can reach us on 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.