Heads of Terms – the Commercial Lease

All new Commercial Lease matters require an outline of the basic terms that need to be agreed at the outset, to ensure all parties are aiming for the same goal. This is best dealt with in a document called the ‘Heads of Terms’.

The Heads of Terms usually outline in general the following elements (although this list is not exhaustive):

  • The parties to the Lease
  • Identification of the property to the Lease
  • Any Guarantor to the Lease
  • The legal representatives for each party
  • The term / length of the Lease
  • The proposed use of the property
  • The rent payable and the frequency of payment (i.e. whether monthly or yearly in arrear or in advance)
  • Rent Reviews – how often the rent will be reviewed and increased/reduced accordingly
  • Repairs – general repair clauses for the Tenant and/or teh Landlord
  • Costs payable by the Tenant to the landlord during the term of the lease (including Estate Charges, utility bills, etc)
  • Insurance of the property – who insures and who pays
  • Business Rates – who pays
  • Security of tenure. When the lease ends, whether the Tenant will be entitled to the grant of a further lease, in accordance with the Landlord and Tenant Act 1954.
  • Legal Costs – whether the Tenant will pay the Landlord’s legal costs in relation to the transaction.
  • References for the Tenant
  • The Rent Deposit. Payable at the commencement of the Lease.
  • The Lease Break Clause. When the lease can be ended by each party and the notice period required for doing so.
  • When the lease can be forfeited
  • Fixtures and Fittings. If so, then they are listed in an ‘Inventory’ to the Lease.
  • Other terms that are crucial to the granting of the final lease
  • The Plan. Usually attached to the heads of terms to identify the extent of the property intended to be leased.

If you need any advice on a commercial property transaction, then get in touch with a member of our Commercial Property team.

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