Heads of Terms in commercial property transactions (sometimes known Memoranda of Understanding) specify the intended terms of the transaction between the parties involved, prior to the agreement being formally finalised and signed. They are used in a variety of commercial property transactions, including sales, purchases and leases.
The main benefit of Heads of Terms is that they allow the parties to be clear on their proposed deal so any points of principle can hopefully be tackled before a formal agreement is put in place. This helps avoid unnecessary abortive fees and costs.
Information Listed in a Commercial Property Heads of Terms
The points contained in the Heads of Terms tend to be the following:
- The names and details of the parties involved in the transaction
- Details of the property
- Additional costs
- Any particular issues that need to be addressed, or conditions which the transaction to subject to, e.g. planning consent
- Details of any representatives (e.g. solicitors, surveyors, etc.) involved for all parties
- For a lease:
- The length of the lease
- Security of tenure
- Break clauses
- Rent and Rent review
- Service charges
- General use of the premises
The Heads of Terms are generally drafted by the seller/landlord, or by their representatives, and are specific to each transaction.
Whilst Heads of Terms are not usually legally binding, they must still be marked as ‘subject to contract’ to avoid any doubt and/or any potential legal disputes between the parties. If the transaction is to go ahead then it is essential that all parties involved are happy with the Heads of Terms before the commercial agreement is finalised.
A downloadable version of the Model Heads of Terms document for leases can be found on the Code for Leasing Business Premises website.
How Can Nelsons Help?
Drafting and agreeing Heads of Terms can be a difficult and drawn-out process and it is important to obtain legal advice from the outset. Our expert commercial property teams in Derby, Leicester and Nottingham work with sellers, buyers, landlords and prospective tenants to advise on and negotiate the right Heads of Terms for them.
If you are involved in a commercial property transaction and would like advice with regards to the Heads of Terms or any other related matters, please get in touch with Martin or another member of the team on 0800 024 1976 or via our online form.