Heads of Terms are a list of the terms agreed in principle between the landlord and the tenant, before the grant of a lease and form the basis of the terms to be included in the legal document.
Essentially, that are a summary of the key points the landlord and tenant have agreed before the detailed lease is drafted.
Why are Heads of Terms Important?
Despite the fact Heads of Terms are not usually legally binding, they are fundamental to save time, reduce misunderstandings, and help minimise the risk of disputes later. This is because Head of Terms set expectations and provide clarity between parties, as well as highlight any potential sticking points.
Heads of Terms are typically prepared by a commercial agent or surveyor. But involving a commercial property solicitor at this early stage can save significant time and cost later.
What are in Heads of Terms?
Heads of Terms should outline a clear, practical summary of a deal. Whilst details vary, the majority will cover:
- Parties involved – the landlord/tenant or buyer/seller, and any guarantors for a lease.
- Property details – address, a description of the land.
- Price or rent – amount, when it is paid, and how often.
- Property specific issues such as rights the landlord wants to keep over any land retained.
- Costs – whether each side pays its own legal and professional fees, or one party covers both.
- Timing – key dates for completion or lease start.
- Conditions – factors to be sorted before the deal can complete.
Additional points for commercial leases can include; lease length, security of tenure, rent review, rent deposit and sustainability and ESG obligations.
Heads of Terms can change as the deal develops or circumstances change. However, it is important to track any changes to ensure core details stay intact.
What happens after I’ve signed Heads of Terms?
Following the signing of Heads of Terms, the next step is to take the agreed points and turn into the full lease or sale contract. However, it is important not to sign Heads of Terms too early. This is because, problems can arise later, such as agreeing to unfavourable terms without realising it or overlooking key details. We would always recommend that you take legal advice before agreeing to any Heads of Terms to reduce this risk.
To summarise, Heads of Terms are a crucial step in commercial lease negotiations, setting out the main points of agreement before the full lease of contract is drafted. Moreover, carefully reviewing each clause and ensuring clarity can save time, money and stress in the long term.
If you want to speak to an expert on commercial leases then please call Nick Attwell on 01473 229200 or email Nick at [email protected]
