If a Landlord wants to grant and a Tenant wishes to take a Lease of a Commercial Property, then ideally the parties should set out the main terms of what they foresee will form part of the Lease. These are often referred to as Heads of Terms (HoTs) and they are the skeleton of what the contractual documents will contain.
Well drafted HoTs outline the main terms agreed between the Landlord and the Tenant. Typically the Estate Agent or Surveyor will prepare an initial document when the Property is marketed and will subsequently negotiate the terms of the tenancy with a prospective Tenant. If the Property hasn’t been advertised, or the Landlord is not using an Agent or Surveyor, the Landlord can also draft the HoTs themselves.
HoTs will result from initial discussions where the parties address and highlight the key issues. HoTs can be detailed and meticulously drafted but can equally be agreed between the parties informally. It is advisable to ensure that the HoTs are written, as this can help avoid any potential misunderstanding that may occur from verbal or informal communications. HoTs are rarely legally binding, but they indicate the parties’ intentions and help each party proceed with confidence.
The main terms usually expressed in HoTs are:
- a description of the Property;
- the amount of rent to be paid
- when it is due
- if it is subject to review
- how long the Lease is being granted for
- if a break clause will be included
- who will have the benefit of the break
- any obligations in relation to repairs and decoration
- any obligations on assignment or sub-letting
- if a rent deposit will be required
- the intended use of the property, to name a few.
The HoTs can also reflect actions to be undertaken either by the landlord or the tenant as a condition to the lease been granted. For example, the landlord may agree to undertake repairs or works to the property or the tenant may want to obtain a satisfactory planning permission either for works to the frontage of a shop or a change of use.
A solicitor can help save you time by ensuring that the transaction is structured in the best way possible and problematic issues avoided but it is not essential to instruct a solicitor to deal with this. Once the HoTs have been finalised, the solicitor’s role is to draft and ensure the lease documentation is fit for purpose. The last thing anyone wants is to negotiate the main terms during the transaction itself.
Article written by Ryan Palmer