Tenant’s beware when agreeing heads of terms on a commercial lease

One of the most important matters when acting for a prospective tenant who is taking a commercial lease is that the tenant takes solicitors advice before agreeing the heads of terms with the landlord's or the landlord's agents. 

Heads of terms are documents usually drawn up by the landlord's agents but sometimes by the landlord which sets out the basic terms of what has been agreed. 

Aside from the obvious things like the length of term, the rent and the respective solicitors who are to be acting both for landlord and the tenant, heads of terms usually  set out other matters that relate to what has been agreed . The problem from a tenants perspective in signing up to these is that while they are not legally binding, if the tenant agrees to what is stated on the heads of terms and subsequently has a problem with the lease he will be faced with the landlord saying but you agreed these in the heads of terms and you are now trying to renegade on the deal. This not only creates bad feeling which can lead to deals collapsing because the tenant didn't fully understand or ask for what was needed. 

On heads of terms it is my strong advice that a tenant should seek advice from the solicitor before agreeing the final version.  Things that are often missed in the heads of terms from a tenants perspective including 

  • limiting the repair obligation to a schedule of condition,
  • capping the service charge,
  • seeking warranties on a new build,
  • making clear that any break clause is not conditional on matters which the tenant has little control over or which are unreasonable,
  • not referring to the tenant’s fit out works,
  • not agreeing that the lease be excluded from the protection built in the Landlord And Tenant Act 1954. This last one is particularly important because a tenant will loose their ability to remain in the property at the end of the term if the lease is excluded from the Landlord And Tenant Act 1954.  It is surprising how often tenants giveaway this right without realising what they are doing so then are held to ransom  at the end of the term by the landlord who insist on unreasonable rent if the tenant wishes to remain in and there is little the tenant  can do about it.  His only option is to leave usually at great cost

If you would like more information on commerical leases or any aspect of commercial property please do not hesitate to contact David Leviten.