“Heads of terms” is a document or an email which sets out the important terms of the lease you are about to enter into. It is usually produced by the landlord’s estate agents at the end of your negotiations for the premises, and before it goes to the solicitors to draw up the lease. It’s not a binding agreement – you will usually see “subject to contract” somewhere in the introductory text. “Subject to contract” means it’s a statement of intent, not a binding contract in itself.
However, this is what everyone will refer back to when working out what should go in the lease and what was agreed during negotiations. If you make sure everything you want and need is fully covered in the heads of terms, the transactions will go ahead smoothly and there will be less chance of anything being missed.
These are the basic things which should be covered in heads of terms.
- The identity and extent of the premises.
- Any special rights
- The length of the term
- Security – rent deposit or guarantee
- Rent
- Business rates
- VAT
- Rent free period
- Other incentives
- Rent reviews
- Service charges and insurance premiums
- Alienation
- Repairs
- Use
- Alterations
- Fit-out
- Any other conditions
The agreements on these points need to be spelt out in the heads of terms. if there’s anything else that you particularly need covered or have agreed because of the individual nature of your premises or deal, these need to go in as well, The landlord’s solicitors who draw up the lease, and your own solicitors who will be looking out for your interests, will both rely on the heads of terms to tell them what the lease should say.
Before the agents issue heads of terms, you should ask them to send you a draft. Then discuss it with your solicitors and you can go back to the agents to add or correct anything.
Once the lease is entered into, that is the binding document. You need to be aware before you sign it of any divergence from what was contained in the heads of terms.