Heads of Terms
What are they?
Heads of Terms is the document setting out the main terms of a commercial lease agreement.
Why do you need them?
Because both parties solicitor’s need a summary of what has been agreed in order to draft a lease. Leases are typically 50/60 pages and contain the finer details of the agreement. The more detailed the heads of terms, the less the solicitors have to agree, and therefore should speed up the point at which the lease is in agreed form.
What stage are they required?
Once you’ve had your offer accepted the landlord’s agent should send through a set of Heads of Terms. They should reflect what has been agreed up until this point, but go into more detail and cover things like repairing liability, rent reviews, deposits, security of tenure, handover condition, service charges and solicitor’s details. You can still negotiate on the additional points. Once the landlord’s agent has your approval they will send them to both your solicitor and the landlord’s solicitor.
What’s included?
Heads of Terms should include the following:
- Incentive (e.g. rent free period)
- Rent Review Clause
- User Clause
- Alienation Clause (will you be allowed to assign or sub-let)
- Handover Condition/Landlord Works
- Alteration Clause (what alternations can you make to the property)
- Legal and Professional Costs (should say each party to cover their own legal and professional costs)
- Solicitors Contact Details
- Break Clause
- Property Address
- Tenant’s Contact Details
- Demise (i.e. the exact area let to you, e.g. ground floor, basement, rear yard and shop front)
- Lease Length
- Security of Tenure (key point – will you have automatic rights to renew at the end of the lease)
- Rent & Payment Method/Frequency
- Conditions (e.g. subject to survey or board approval)
- Timing (these are target timings not binding)
You ideally want the Heads of Terms to look like the template below. But, it’s not always possible. It depends on the strength of your position versus the landlord’s position. For example, has the landlord received other offers.
