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Why Heads of Terms (HoTs) can be such a HoT topic

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If a landlord wants to grant and a tenant wishes to take a lease of a commercial property, then ideally the parties should set out the main terms of what they foresee will form part of the lease. Effectively the HoTs is the skeleton of what the contractual documents will contain. 

Well drafted HoTs outline the main terms agreed between the landlord and the tenant. Usually the estate agent or surveyor will prepare an initial document when the property is placed on the market and will subsequently negotiate the terms of the tenancy with a prospective tenant. If the property hasn’t been advertised, or the landlord is not using an agent or surveyor, the landlord can also do it themselves.

HoTs will result from initial discussions where the parties address and ‘hash out’ the key issues. HoTs can be detailed and meticulously drafted but can equally be agreed between the parties informally. It is advisable to ensure that the HoTs are written down, as this can help avoid any potential misunderstanding that may occur as a result of verbal or informal communications. HoTs are rarely legally binding, but they indicate the parties’ intentions (which can be valuable if a later dispute unfolds) and help each party proceed with confidence.

The main terms usually expressed in HoTs are: a description of the property to be let, the amount of rent to be paid, when it is due, if it is subject to review, how long the lease is being granted for, if a break clause will be included and who will have the benefit of the break, any obligations in relation to repairs and decoration, any obligations on assignment or sub-letting, if a rent deposit will be required and the intended use of the property, to name a few.

The HoTs can also reflect actions to be undertaken either by the landlord or the tenant as a condition to the lease been granted. For example, the landlord may agree to undertake repairs or works to the property or the tenant may want to obtain a satisfactory planning permission either for works to the frontage of a shop or a change of use.

A solicitor can help save you time and money by ensuring that the transaction is structured in the best way at the outset and problematic issues are identified and avoided but it is not essential to instruct a solicitor to deal with this on your behalf. Once the HoTs have been finalised, the solicitor’s role is ‘to put meat on the skeleton’ and ensure the lease documentation is fit for purpose. The last thing anyone wants is to negotiate the main terms during the transaction itself. This is expensive and time-consuming.

This article is not a definitive statement of the law. It is designed as a free update on the law at the time of publishing. It is not a substitute for legal advice on specific facts and circumstances. BakerLaw LLP and/or the writer accepts no liability or responsibility for reliance on this article and recommends that you seek independent legal advice on your specific circumstances prior to taking any steps.