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Heads of Terms for Property in the post-lockdown era

27th May 2021

With the lockdown restrictions slowly being eased, many businesses will be considering the return of their employees to the workplace.  There will also of course be a number of businesses reconsidering their existing arrangements, and their need for office space.

The post-lockdown world is therefore likely to see a variety of activity in re-negotiating terms of existing leases, new leases for smaller offices spaces, and for those businesses which have flourished during lockdown, potential expansion to new premises.

Critical to these negotiations will be comprehensive Heads of Terms for each transaction, clearly detailing what is being agreed, with a specific timetable of actions and obligations of the involved parties.

The Heads of Terms agreement provides the framework for the deal.  It covers how it should be executed and provides a written record of the key terms, all of which are typically resolved before involving solicitors, and that can be a problem.

Heads of Terms for Property transactions

The process of negotiating a detailed set of Heads of Terms often requires patience and commitment from both parties.  It will however be a valuable experience, as it demonstrates how committed the other party is to the transaction, and will provide an insight as to how they will approach the transaction generally.

A set of Heads of Terms will note fundamental points such as the price, the identities of the parties involved, an overview of what has been agreed, timescales, and any confidentiality considerations.

For a lease transaction, examples of the provisions to be considered include:

  • Property details – The address of the property, and title number if appropriate. Reference to a plan is helpful if possible.
  • Party details – Information relating to all the involved parties, including names, contact details and whether a company or individual is agreeing the lease.
  • Adviser details – Personal details of the professional advisers you have engaged (solicitors, accountants, agents etc.).
  • Rent– the amount payable per annum, the payment dates, and any rent free periods. Will there be a rent suspension for COVID-related closures?
  • Rent Reviews – the frequency of any rent reviews and method of these reviews.
  • Break clause – Does the lease include a break clause and what conditions trigger it? Will there be a COVID-related break clause?
  • Repair and Decoration provisions – is the lease to be full repair? Or subject to a Schedule of Condition? How often will the tenant be required to redecorate?
  • Alienation – is the tenant permitted to assign or underlet?
  • Rent deposit – is there to be a rent deposit paid?
  • Security of tenure – will the lease be excluded from the provisions of the Landlord and Tenant Act 1954?
  • Timescales – what are the target dates for completion?

This list is by no means exhaustive, and discussions with a professional advisor may unearth specific points which are fundamental to your needs.

One of the most important considerations for parties when drafting a Heads of Terms is to ensure that they are not accidentally legally binding, when there is no intention to be legally bound.

Whilst using the terminology such as ‘subject to contract’ is a good start to avoiding issues, the actions of both parties will have an impact on whether the provisions are deemed to be legally binding.

Professional support from the outset is vital, so you can proceed without making any costly mistakes. It is recommended that Heads of Terms are negotiated by an experienced agent, with input and review on the drafting from an experienced Commercial Property solicitor.

Starting off on the right foot

Once agreed, the Heads of Terms act as the framework for the deal, and a reference point in times of disagreement when negotiating the legal documentation.  A well prepared set of Heads of Terms will often lead to a smoother and timelier conclusion of the transaction.

If you are in the course of negotiating a commercial property transaction, advice from an experienced solicitor is just a call or email away. Please speak to Laura Pyatt on 01543 431181 or email at lpyatt@ansonssolicitors.com

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