Five Key Points to Note About Heads of Terms in the UK

Whether you are a commercial landlord or a commercial tenant in the UK, you will come across heads of terms when you draw up your commercial lease agreement for a commercial property. Heads of terms are significant because they represent the initial key terms your lease agreement will contain, such as a rent review clause. A lease agreement is a legal contract between a landlord and a commercial tenant which sets out the terms of the business use of the commercial property in return for rent payments. It also sets out obligations for both parties, which you will want to ensure are realistic for you as a tenant or a commercial landlord. This article will explain five critical points for commercial landlords and tenants about heads of terms in the UK. 

Heads of Terms 

Heads of terms are the document setting out the main terms for your lease agreement. These are the terms both parties agree upon. If you draw up your commercial lease agreement, it will include the details of these terms. For example, heads of terms may contain:

• rental price;
• identities of the landlord and the tenant;
• details of other agreements between the two parties, such as those concerning alterations; and
• any specific provisions key to moving the lease agreement forward.

Let us explore five key points you should know regarding heads of terms for commercial leases in the UK.

1.  Resolve Issues at the Outset

A key point about heads of terms is how useful they are in resolving potential issues at the outset of the relationship between the commercial landlord and the commercial tenant. For example, suppose you, as the landlord or tenant, have specific expectations of the commercial lease or have different thoughts. Accordingly, you may raise them during the heads of terms negotiations. 

Heads of terms enable you to resolve these differences before drawing up and signing a lease. Thereby, you can avoid raising issues after incurring substantial fees. 

2. Negotiate

Heads of terms are a chance for you, the commercial landlord or tenant, to negotiate with the other party. They allow you to decide and agree on what you wish the lease agreement to be. Therefore, suppose one party suggests what the heads of terms should contain, and you disagree. You can suggest changes.

3. Lock Out Clauses

Your heads of terms for a commercial lease can contain a lockout clause. This means neither you nor the other party can start talking to landlords or tenants for a set period. This is helpful as it can prevent either of you from feeling compelled to sign the commercial lease under the pressure of another party.

4. What to Include

A key point to note about the head of terms in the UK is what you, as a commercial landlord or tenant, should include in them. Naturally, it is up to the parties to agree on this, but if you have no experience in lease agreements, you should note a few pointers. A helpful start is to turn to the RICS Code for leasing business premises for a list of what you may wish to include and explanations of the terms.

5. Subject to Contract 

As heads of terms are normally intended not to be legally binding on the tenant or the landlord, it is wise to state this fact explicitly. This ensures both parties are clear on this and that the heads of terms instead outline what the two have agreed and intend to include in the lease agreement. You can do this by the use of the phrases:

• ‘not intended to be legally binding; or
• ‘subject to contract’.

Key Takeaways

When commercial landlords and tenants wish to enter a commercial lease, they will initially draw up heads of terms. They outline what they intend to include in the commercial lease agreement. They are generally not legally binding and will set out the main terms without fuller details. However, it is important to note key points about heads of terms. For example, you can negotiate what you wish to include in the lease agreement between both parties. Additionally, they provide an opportunity for a lockout clause to remove the pressure of feeling rushed into the commercial lease.

If you need help understanding the heads of terms for commercial leases in the UK, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.

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