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Lease of life for the High Street?

18 March 13

A simplified small business lease published by the RICS in Scotland could make life simpler in that sector of the market

by Hugh Angus

The Royal Institution of Chartered Surveyors in Scotland has recently published a Scottish version of their small business retail lease: www.rics.org/Global/RICS Small Business Lease - Scotland.cmallett.pdf. The English and Welsh version was issued last year.

It is intended for a lease of up to five years of retail lock-up property, with no rent review. The RICS hopes that this will provide a boost to the High Street in a time of decline, making it quicker and easier to put empty units back into use. While I think the High Street needs more help than that, it may help the tertiary market, which is a significant sector of the Scottish market. From a commercial property lawyer’s perspective, anything that simplifies low-value transactions is worth looking at.
The lease is generally clearly drafted, and if the blanks and other options are completed properly, it could work well. I cannot see any issues in how it has been translated from the English and Welsh version, which is not a surprise as the RICS has taken advice from the Property Standardisation Group. The RICS advises that professional advice should be taken in connection with the lease, but it is clearly possible that the parties will not take legal advice.

The format is a printed form with the blanks to be completed by hand (or typewriter if you still have one). It is only available in PDF, and the RICS has kept copyright. It has failed to specify how the lease is licensed for use by third parties. I think there is therefore an intention to give an implied licence to print and fill out the form, but not necessarily to modify or reproduce the style. Accordingly, if it is not practical to complete/amend the form due to particular details that need to be inserted or dealt with, then one cannot really use the style.

Building issues

The description of the property assumes a red line on a plan and includes the option of the property being part of a larger building. How often are there good plans of a tenement shop already in existence? The landlord will be exposed if a new plan shows less than the landlord owns.

It is not a full repairing and insuring lease, which would not be appropriate for such a short period. The tenant is to keep the property clean, tidy and in no worse repair and condition than at the start of the lease. A schedule of condition is to be attached. The cheapest solution will be a simple photographic schedule. Remember that if each page with photographs, as well as the plan or plans, is not signed, then the landlord will not be able to register the lease in the Books of Council and Session and obtain the benefits of easier diligence. Damage by insured risks is generally excepted, but there is no obligation on the landlord to procure a waiver of subrogation rights. This is now included in most policies as a standard term.

Where applicable, the landlord is to keep the remainder of the building in such state of repair as will not interfere with the tenant’s ability to trade from the property. The landlord is to have no other repairing obligation. It is therefore possible there will be repairs that are needed to prevent deterioration which neither party is obliged to effect.

Where the property is part of a larger building, the lease is silent on the question of responsibility for repairs to the common parts of the building, apart from that limited landlord’s obligation. In practice, the landlord may be able to manage that risk to a limited extent.

Other matters

There is no additional charge for buildings insurance. Generally alterations are prohibited apart from the erection of internal counters, shelving, partitioning etc, subject to the tenant reinstating these at the end of the lease. Landlord’s consent to an assignation is not to be unreasonably withheld, but there is an absolute prohibition on subletting. If the whole or a large part of the property becomes unfit for use, or inaccessible, the rent is suspended and either party may end the lease by giving notice to the other. These all seem sensible compromises, though others would also work.

Any dispute under the lease may be referred to an independent expert, who is to proceed in accordance with the RICS Rules for Expert Determination of Disputes – SME Leases. Copies of these rules are available from the RICS on payment of a small charge. The procedure is similar to that seen in many rent review clauses. There is an initial charge of £200 plus VAT for the appointment, and a maximum fee to the expert that will not exceed £1,300 plus VAT, shared equally between the parties.

This lease is suitable for use in straightforward transactions, where the property is in reasonable condition and the parties have not agreed anything not contemplated in the form. The form needs to be completed and signed carefully.

Hugh Angus, Partner, Morton Fraser LLP

 

 

 

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