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Are you buying, selling or leasing a commercial property? Get the ‘Heads of Terms’ right! Are you buying, selling or leasing a commercial property? Get the ‘Heads of Terms’ right!

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Feb 20

Are you buying, selling or leasing a commercial property? Get the ‘Heads of Terms’ right!

Written by John Carter
Associate

DDI: 01423 724620
E: john.carter@raworths.co.uk

If you’re involved in a commercial property transaction then it’s advisable to have proper Heads of Terms (HOTS) in place from the outset. These documents are important in that they ensure that negotiations are focused on the key issues, flagging them early-on, saving time and money.

HOTS summarise the key terms of the deal agreed between the parties involved. They list the main points to be addressed in the formal legal documentation and provide a framework for the drafting and negotiation of that document.

It’s worth pointing out that HOTS aren’t meant to be legally binding and are often marked ‘subject to contract’ or ‘not legally binding’, however, they do have moral force and it’s important they’re accurate as they will influence negotiation of the legal documentation.

What should be included in HOTS?

HOTS should give a clear description of the commercial property together with information about any rights or restrictions affecting the property (such as any rights of way). They should also give full details of the parties involved, their solicitors (if any) and set out the timescale for completion.

Commercial property HOTS for a sale will state the purchase price and for a lease will state the rent and other sums payable under the lease. HOTS for leases are longer than those for sales because there are many more issues to be covered in a lease which will include some, or all, of the following:

  • length of the lease
  • any ‘break clauses’ (which allow one or both parties to end the lease early)
  • details of any guarantor or rent deposit required
  • any rent-free period
  • provisions for rent review
  • repairing obligations
  • insuring obligations
  • whether the tenant can carry out alterations to the premises
  • whether the tenant can sublet or transfer the lease
  • any services to be carried out by the landlord

Who drafts HOTS and when do solicitors get involved?

Usually HOTS are produced by property agents acting for the seller/landlord although they can be drawn up by the parties themselves. When they are in an agreed form, the parties will then instruct solicitors to draft, negotiate and finalise the legal documentation.

However, it’s advisable to get HOTS reviewed by your solicitor before agreeing them as they may be able to point out issues of concern and avoid any potential problems during the transaction process.

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