What to look out for when negotiating heads of terms in a commercial lease

Posted: Friday, 27 July 2012 @ 10:00

If you’re a commercial tenant trying desperately to find the right commercial premises for your business it can be very tempting to quickly agree the terms you are offered without fully understanding the consequences. The so called ‘heads of terms’ offered by the landlord set out the main commercial terms you are signing up to, so it’s best to be very clear on what the implications are. 

There are some important points to consider when settling on commercial lease heads of terms, including:  

  • Break clauses – the ability to terminate a lease early is vital and you should consider when you might need to terminate either because a new venture hasn’t succeeded or because the business has expanded and you need larger premises. Take advice if there are any conditions associated with breaking the lease as these could mean the break clause you thought you had can’t be exercised.
  • Repair obligations – be very clear on what the lease obliges you to do and where possible limit these obligations. A ‘full repairing’ obligation will often require you to improve the property to bring it up to a state of full repair. A detailed schedule of the condition of the property may be a useful way of limiting your obligations.
  • Services charges – when taking out a commercial lease you should aim to negotiate a service charge cap. This avoids an unwelcome shock if the landlord decides to spend a large amount of money on repairs or refurbishment.
  • Statutory obligations – as a tenant you will normally be required to carry out works required by statute or other legal obligations (eg disabled access). For a long term lease you may be happy to take on these obligations, but for a short lease you may wish to negotiate this point and limit your liability.
  • Subletting – consider your options for sub letting parts of the property, especially if you anticipate changes to your premises' needs over the period of the lease (ie room for future expansion or the ability to downsize easily). 

If you can get the head of terms on a commercial lease right the detailed lease agreement itself is normally much easier to settle on. 

Steve Petty
Commercial Property Solicitor

This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation to discuss your particular circumstances.

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