Commercial property: Heads of Terms

Below provides a very basic introduction to Heads of Terms - a document that sets out the terms of a commercial transaction agreed in principle between parties in the course of negotiations.

For a more in-depth understanding, read our exclusive eight-part series highlighting the important aspects of negotiating Heads of Terms in a commercial lease and what tenants and landlords should consider and why.

Read the full series:

1. What are they, and why are they important?
2. Negotiating a commercial lease 
3. Alienation and transferability of the lease
4. Rent-free periods and break clauses
5. Service charge and insurance provisions
6. The tenant's covenant to repair
7. Making alterations to the property
8. Final boilerplate provisions in a commercial lease

Heads of Terms: A basic overview

Heads of Terms will outline the skeleton terms of the lease, such as its duration and whether it is protected under the Landlord and Tenant Act 1954. 

They will also encompass the use of the property and define the annual rent with any provisions for it to be reviewed. 

Heads of Terms can be quite detailed; however, they are generally not comprehensive enough to cover all particulars involved within the legal contract. 

Recording the key points within the Heads of Terms is an efficient way for both parties to identify all details and lay the foundations of a contract/lease before they are drafted into a formal legal agreement.

Why have Heads of Terms?

Drawing up Heads of Terms at the outset of the transaction will determine a guideline of each parties’ understanding of the agreement and help prevent any misunderstandings that can be easily identified at an early stage before the formal drafting. 

Heads of Terms can also give evidence that each party intend to enter into a formal agreement. Once the parties have agreed on the basic terms of the transaction, they can instruct a solicitor to draft the agreement encompassing the Heads of Terms provided. 

This will prevent delays or disputes later on within the transaction when the parties have already committed a significant amount of time, and legal fees spent drafting a detailed contract/lease.

Are Heads of Terms binding if parties fail to make a formal agreement?

Heads of Terms are not generally legally binding. They are used as an instrument to set out the important terms when drafting a contract/lease, and the parties are only legally bound once the formal documents have been signed. 

Contact our commercial property solicitors

SO Legal has commercial property solicitors in London, Brighton and East Sussex and works with clients across the UK. 

If you need support with a commercial lease or want an informal no-obligation discussion, contact our team.