Commercial Property Heads of Terms
Usually when a commercial property is marketed for letting, the landlord will take the lead in negotiations and will draw up heads of terms once a letting has been agreed in principle.
However, in some cases the tenant may wish to take the initiative. The template heads of terms in this folder can be used by tenants as a basis for reaching agreement with a proposed landlord on the main terms of the letting.
Tenants may find themselves taking charge of negotiations if the landlord is inexperienced in property transactions or if the letting has not been agreed on the open market. In addition, a tenant that occupies a large number of properties, for example, a chain of shops, may have adopted a standard set of heads of terms that it likes to use for all transactions. Aiming for uniformity in all its leases will help a tenant to meet its obligations to its various landlords.
Commercial Property Heads of Terms is part of Property. Just £38.50 + VAT provides unlimited downloads from Property for 1 year.
Frequently Asked Questions
Are heads of terms for a commercial lease legally binding? +
Generally no. Heads of terms are normally agreed subject to contract, which signals that neither side is bound until the lease itself is completed. A contract to grant or take a lease is only binding if it is in writing, contains all the agreed terms and is signed by both parties under the Law of Property (Miscellaneous Provisions) Act 1989, so heads of terms fall short of that. They still matter: they frame the deal and guide the drafting. Keep them marked subject to contract to avoid being tied in early.
I am the tenant, can I put forward my own heads of terms? +
Yes. Although the landlord usually leads, a tenant can take the initiative and propose heads of terms as the basis for agreement, which is common where the landlord is inexperienced or the letting was not agreed on the open market. A tenant that occupies many properties, such as a retail chain, often uses a standard set of heads of terms to keep its leases consistent. Simply-Docs provides tenant heads of terms for exactly this purpose.
What should heads of terms for a commercial lease cover? +
The commercial spine of the deal: the parties and premises, the rent and any rent-free period, the term, any break rights, rent review, the repairing basis such as full repairing and insuring, permitted use, service charge and whether the lease is inside or outside the Landlord and Tenant Act 1954. Setting these out clearly narrows the points lawyers need to negotiate and reduces cost and delay. Mark the document subject to contract throughout.
Do subject to contract heads of terms create any obligations at all? +
Rarely, but read them carefully. Subject to contract heads of terms are not a binding agreement to grant or take the lease, so either side can still walk away. However some clauses may be intended to bind on their own, for example who pays abortive costs, confidentiality or a separate lock-out or exclusivity agreement that stops the landlord negotiating with others for a period. If you want any of those to bite, they need to be clearly worded as binding, separate from the subject-to-contract terms.
