Relationships with your Landlord - Heads of Agreement

Posted by Malcolm Campbell on 28 July 2016
Relationships with your Landlord - Heads of Agreement

For most businesses the location of their business will be of vital importance to the success of the business. Obtaining security of tenure and avoiding having to move locations regularly will be a key to managing costs and productivity for all businesses.

However, many business operators don’t have the luxury of owning the premises that they operate from. Accordingly, dealing with a commercial lease is a necessity for them. Behind wages and stock, rent is often one of the largest ongoing overheads most businesses incur hence making the lease one of the most important internal documents that a business is likely to have to deal with.

Due to the complexity and cost of having a detailed lease prepared, often Agents will require a proposed lessee to sign a Heads of Agreement and pay a deposit (usual one month’s rent) before the lessor will instruct their lawyer to prepare the formal lease.

Whilst this is not a binding lease in its own right it is often used as the ‘term sheet’ from which the lessor’s lawyer will prepare the formal lease.

If the lessor or their agent wish to issue a Heads of Agreement it is important to make sure that it clearly outlines each of the key terms agreed to in principle. Failing to address an area of concern in the Heads of Agreement will always makes it more difficult, time consuming and costly to subsequently seek to have the relevant section of the lease amended. Sometimes such a request will be rejected by a lessor purely on the basis that a proposed lessee signed off on an element of the deal in a Heads of Agreement.

Whilst there is no obligation to enter into a lease that you are not satisfied with (even if you have signed the Heads of Agreement) you may well incur wasted time, effort and costs if you subsequently refuse to enter into a lease prepared in line with an executed Heads of Agreement.

We have years of experience in helping businesses manage their leasing requirements. It is unquestionably better to get the right advice before you enter into any documents regarding a proposed lease. If you are looking at entering into a lease speak to us before you commit to the premises so we can guide you through the process so you can move forward with clarity and confidence.