‘Heads of Terms’ is the document generally drawn up by the Landlord’s agent prior to the letting of a commercial property. Whilst the terms are not binding until incorporated into a lease, it can save you both time and money to get them right first time around.
10. Right Property right price!
Before you enter into negotiations consider whether the property is right for you. Speak to a surveyor to make sure you are not paying over the odds for a property in that location. Also make sure that the Landlord and the local planning regulations permit you to use the property for your desired use.
9. Term
When negotiating on the length of a lease term you should assume that you will be liable for the entire term. It sounds obvious, but do you really want to be committed to pay rent in the property for the next 10 years, whether or not your business is doing well?
8. Costs
Landlords will sometimes request that you pay their legal fees for entering into a lease with you. This is not something you have to agree to and is a matter for negotiation.
7. Guarantors
A Landlord may request a guarantor to the lease, especially where the tenant is a limited company. A guarantor will guarantee a tenant’s performance of a lease and is liable on the same basis as the tenant. As the old saying goes ‘ A Guarantor is a fool with a pen!’.
6. Rent Deposit
Landlords will often request a deposit upon commencement of a lease to cover the possibility of a tenant default. Consider whether you wish to negotiate that such a deposit is released before the end of the lease e.g. after 3 years or when you can provide accounts showing annual turnover three times greater than the rent.
5. Break Clause
Do you want the ability to bring your lease to an end early? By including a break clause you can have the right to do so at specified times during the term of your lease.
4. Alienation
Are there going to be any restrictions to your ability to ‘sell’ or ‘dispose of’ the lease? Leases often include restrictions that do so, which could make it very difficult to dispose of your lease should you wish to do so before the term has ended.
3. Security of tenure
Leases for business purposes generally attract ‘security of Tenure’ under the Landlord and Tenant Act 1954. ‘Security of Tenure’ means that you have an automatic right to renew your lease at the end of its current term (subject to some exceptions) should you wish to. Check whether your lease going to be excluded from these provisions or not.
2. Repair
This is the most important element of negotiations to get right. Decide whether you are happy to have an open ended obligation to put a property back into repair (whether or not it was in repair when the leases starts) or whether you would like the obligation limited by reference to a schedule of condition
1. Finally
Consult a solicitor before agreeing the heads of term. Would you decide what medical treatment to have before consulting a doctor?!