With us now well and truly in the new year, many businesses will be looking to either start or renew their commercial lease.
At this stage, Heads of Terms can be vital to set out the terms of the lease before things are finalised in the contract.
In this article, Commercial Property Specialist Charlie Bennett discusses how Heads of Terms work, whether they’re legally binding and what to look out for when negotiating.
What is the head of terms in a commercial lease?
Heads of Terms (HoTs) are a list of items agreed between the landlord and the tenant.
HoTs are set out prior to a lease being granted or renewed, and form the basis of what will be included in the formal contract.
Are HOTs legally binding?
Although they are not legally binding, HoTs are a good way for both parties to understand each other’s intentions.
In addition, HoTs often make it easier for an agreement to be reached at contract stage, as many of the main terms will already have been agreed in principle.
What is an example of a head of terms?
Heads of Terms often talk about:
- Lease terms,
- Break clauses,
- Rent amount,
- Payment terms,
- Deposits,
- Each parties’ obligations,
- Legal costs.
But can also include insurance responsibilities, alterations, security of tenure and rules on property use and subletting.
Related: Commercial subletting - What is it, how does it work, and can I do it?
Do I need Heads of Terms when renewing a commercial lease?
Although HoTs aren’t required, they can be extremely useful when renewing a commercial lease, especially if substantial changes are being made.
Unless drastic changes to the terms are needed, its advisable to broadly stick to the terms of the existing lease when renewing as, if the matter has to go to court, the existing terms are the ones that the court will start with when deciding what the new lease should include.
Related: The process of renewing a commercial lease explained
Heads of Terms: What to look out for
Aside from the main terms, you should keep an eye out for anything raised in the HoTs that will affect how much money you are spending per year, including:
- VAT
- Service Charge
- Annual buildings insurance
- Restrictive Covenants
- Authorised planning usage
- Rent deposits
Related: How to negotiate a commercial lease with your landlord
Heads of Terms: Do I need a solicitor?
Although you don’t necessarily need a solicitor to assist you in Heads of Terms negotiations, we would definitely recommend it.
A qualified professional can help you protect your legal position and ensure that your best interests are retained during negotiations, especially when dealing with complex terms.
Getting a solicitor involved early also means they’ll have a better understanding of your needs when it comes to contract negotiations. And, if things ever escalate to court, they’ll already be familiar with the details.
Specialist Heads of Terms Solicitors
If you have any queries following this article, or would like us to assist you in HoTs/contract negotiations, please don’t hesitate to get in touch with our bright Commercial Property Team.
To get in touch, you can call us on 01202 499255 or fill out the form at the top of this page. We offer a free initial appointment for all new clients.
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