Entirely Property


The hidden dangers of Heads of Terms on a commercial lease.

David Leviten

DAVID LEVITEN | Partner at Clough Willis

The hidden dangers of Heads of Terms on a commercial lease.

So, you have found the perfect property for your company to rent and think you have agreed the terms when suddenly the landlord’s agent produces a document called the heads of terms (“Heads”) and asks you to approve it...

You stare blankly at the document and rather than appear stupid you just say: “it looks fine to me”. You take the view that it is not binding (which is true) and if your lawyer is unhappy then he or she will tell you. This is a big mistake that we see every day!

Firstly, always, always get your lawyer to check the Heads – along with any other legal document to do with a lease - before you approve it. This is imperative because if your lawyer spots something later in the lease documentation which he or she considers not acceptable (but is contained in the Heads) then it will at best be judged as lack of good faith on your part and at worse a deal breaker. Either way it will be costly in terms of abortive legal spend.

While you should always have a lawyer check the Heads for you, the following are common examples that prospective tenants make:

Agreeing to a full repairing lease. This may mean the tenant could be liable to remedy existing repairs. The tenant should consider limiting the repair obligation so that they are not liable to put the property into no better condition than at the date lease entered into. There should also be a photographic schedule of condition evidencing the current state. This could possibly prevent a dilapidation claim which could run into thousands of pounds.

Extensive service charge provisions which are open ended. The tenant should seek to cap the service charge. The service charge may be so extensive that it covers the ability on the landlord’s part - but at the tenant’s cost - to replace, as oppose to repair, existing facilities. This could include wages for the landlord's employees and also pension provisions along with the cost of borrowing to the landlord. Without a cap, the tenant could find the initial service charge to be wildly under the actual cost.

Break clauses which are anything other than unconditional. Tenants often think that if the lease does not work out they can always exercise the break – not always so. Often, the preconditions are so onerous that effectively the tenant cannot exercise the break and is stuck in the lease even though they want out.

Agreeing that the lease is excluded from the Landlord and Tenant Act 1954. This looks innocuous but a tenant who agrees to this is effectively giving up their statutory right to remain in that the premises at end of the term and at that point able to negotiate a market rent. A landlord who has managed to secure a lease excluded from the Act will be able - should the tenant wish to stay on - to lay down exactly what rent and what terms he or she wants; and the tenant will have no right to force the landlord to be more reasonable. Strictly, a tenant who agrees to the Landlord and Tenant Act 1954 exclusion should pay less by way of rent as the tenancy is worth less.

Other issues include:

~ Agreeing restrictions on alienation on assignment and underlettings which are so restrictive that effectively the tenant will not be able to assign or underlet.

~ Paying the landlord’s legal costs – in most negotiations each party bears their own.

~ The Heads not adequately covering the works that the fit out the tenant wishes to do. Also, in some cases, not making it clear that the tenant wishes to take out some of its fittings at the end of the term having spent considerable sums.

~ The user being granted not being extensive enough to cover the tenant’s proposed use.

~ Extensive decoration covenants.

To sum up, the hidden dangers attached to negotiating a commercial lease are numerous so the message has to be: Always get your lawyer to check the Heads or proceed at your own risk!


DISCLAIMER: The statements, opinions, views and advice expressed in this article are those of the author/organisation and not of ENTIRELY. This article should represent information correct at the time of publication however whilst every care has been taken to present up-to-date and accurate information, we cannot guarantee that inaccuracies will not occur. ENTIRELY will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within this article or any information accessed through this site. The content of any organisations websites which you link to from ENTIRELY are entirely out of the control of ENTIRELY, and you proceed at your own risk. These links are provided purely for your convenience and do not imply any endorsement of or association with any products, services, content, information or materials offered by or accessible to you at the organisations site.

CRE Property & Construction Consultants

CRE are a team of Chartered Building Surveyors and Project Management Consultants that operate across the United Kingdom. CRE offers customers a new and refreshing approach to commercial property and project advisory services.

Sovini Group


The Sovini Group comprises both not-for-profit, and commercial enterprises, and its purpose is to bring together complementary organisations which have similar values and aspirations in both the not-for-profit and commercial sectors.

One Vision Housing

Housing association

One Vision Housing is a Registered Provider of Social Housing with approximately 13,000 homes across Sefton, Liverpool and Wirral.We were formed in October 2006, following a successful stock transfer from Sefton Council and are a not-for-profit organisation, regulated by the Homes and Communities Agency.One Vision Housing is part of the Sovini Group which was formed in December 2011.

Pine Court Housing Association

Housing Association

Pine Court Housing Association is a registered social landlord providing over 450 quality affordable homes in Liverpool and Wirral.Formed in 1986, Pine Court Housing was originally established to provide quality homes and housing services for those in need, with a specific focus on the Chinese and South East Asian communities.


Business Sale Experts

Intelligent is unrivalled in the sale and purchase of privately owned SMEs such as Convenience Stores and Hotels, whilst Intelligent Corporate focuses on owner operated companies valued from 0.5million to 10million. The operational business is divided into key sectors, offering market leading advice for both buyers and sellers. Intelligent have developed their business through using bespoke, market leading technology and employing a dedicated, professional team.