Heads of Terms are the point where a letting stops being a conversation and starts becoming a legal commitment. Get the documents and checks right at that stage and the lease drafting runs smoothly. Get them wrong and you can promise rights you do not own, let to the wrong legal entity, or find your tenant cannot actually fund the term you have agreed. This guide sets out exactly what a commercial landlord should gather and verify before signing anything.
A landlord agreeing Heads of Terms should prepare a written summary of the proposed letting, verify the tenant's identity and financial standing, check the property's title and proposed use, and agree the main financial and legal terms. The landlord should also decide the security of tenure position and obtain any lender or superior landlord consent.
Most landlords I speak to treat Heads of Terms as a formality. The agent has found a tenant, the rent has been agreed, and everyone wants the lease completed as quickly as possible. I understand the commercial pressure, but in my experience that is exactly the moment where problems quietly get baked in.
A landlord agreeing Heads of Terms for a commercial lease should be gathering the checks that tell you whether the deal in front of you is actually workable. Does the tenant exist as the entity you think it is? Can it fund a five year commitment, or only the first quarter's rent? Does the title allow you to grant the rights you have just offered? Is the proposed use even lawful in that building?
I have seen a letting collapse at the eleventh hour because the landlord had promised six parking spaces that the title did not support. I have seen a lease granted to a trading name rather than the limited company, leaving the landlord with no realistic route to recover arrears. Neither problem was dramatic. Both were avoidable with a couple of hours of checking before the document was signed.
This article sets out the documents and checks a commercial landlord should gather when agreeing Heads of Terms, in the order I would actually do them. For the wider legal framework, start with our guide to what is a commercial lease and then come back here.
Heads of Terms are a written summary of the principal terms agreed in principle between a commercial landlord and a prospective tenant. They provide the framework for drafting the formal lease and associated documents. They are usually intended to be non-binding, although particular obligations can be legally enforceable if expressly agreed.
Typical Heads of Terms cover:
The RICS Code for Leasing Business Premises provides a useful framework and includes a template document you can adapt. Our solicitors for advising on heads of terms regularly review draft terms for landlords before they are released to the tenant's side.
A commercial landlord should assemble the documents that establish ownership, identify the premises, confirm relevant restrictions and show whether the proposed letting can proceed. Not every document is needed for every transaction, but gathering the core information early lets your solicitor spot problems before substantial legal costs are incurred.
| Document | Purpose |
|---|---|
| Heads of Terms | Records the proposed commercial agreement |
| Land Registry title register | Identifies registered ownership, charges and rights |
| Title plan | Identifies the property's general extent |
| Proposed lease plan | Defines the actual premises to be let |
| Existing or superior lease | Identifies restrictions where the landlord holds a leasehold interest |
| Mortgage information | Helps establish whether lender consent is required |
| EPC | Establishes the property's energy rating |
| Planning information | Helps assess the permitted business use |
| Service charge information | Explains relevant shared property costs |
| Insurance information | Identifies cover and how insurance costs are recovered |
| Schedule of Condition | Records property condition where relevant |
| Draft lease or precedent | Provides a starting point for legal drafting |
Do not assume that an existing lease or an old plan accurately reflects the letting you are about to grant. Buildings change, demised areas shrink and grow, and rights that once existed can lapse. If you are letting part of a building for the first time, a new plan is almost always needed. Our solicitors for title investigations can check the position quickly if you are unsure.
A Land Registry title check establishes who owns the property and whether the title contains restrictions, mortgages, rights of way or other matters relevant to granting a lease. It also shows whether the landlord owns the freehold or holds a leasehold interest subject to another landlord's rights.
Your solicitor should then consider whether the proposed lease can lawfully be granted. In practice, the issues that most often surface are:
Remember that the title plan generally shows only the property's general boundaries. It is not usually a substitute for a detailed lease plan.
From experience
A landlord agreed to let a warehouse with six parking spaces, and the Heads of Terms said so in terms. When we looked at the title, there was nothing establishing the landlord's right to grant those spaces. The tenant's surveyor picked it up, and the letting was delayed for weeks while a separate arrangement was negotiated. Reading the title before the document was issued would have cost an hour.
A landlord should confirm the proposed tenant's exact legal identity before agreeing any terms. For a limited company, check its registered name, company number, status and filing history. For an individual or partnership, establish precisely who will enter the lease and bear its obligations.
A trading name is not necessarily a separate legal entity. The classic example:
Trading name
ABC Coffee
Proposed tenant
ABC Coffee Limited
The lease must name the correct contracting party. For a company, review:
Companies House is an important starting point, but its records are not a guarantee of financial reliability. You should also consider anti-money laundering identity checks where the transaction requires them.
A landlord should assess whether the tenant can realistically meet rent, service charge, repair and other obligations across the whole term. Relevant evidence may include filed accounts, management accounts, credit reports, trading history, trade references and information about the proposed business.
Checks should be proportionate, lawful and relevant. Personal information must be handled in line with UK GDPR, so keep your enquiries focused on what actually affects the tenant's ability to pay.
A tenant's ability to pay the first quarter's rent does not demonstrate an ability to meet a five year lease commitment. If you are a landlord buying a property with a tenant already in place, our commercial lease solicitors for property landlords regularly carry out covenant reviews before completion.
A rent deposit or guarantor may be appropriate where the tenant has limited trading history, weaker financial standing or other identifiable covenant risk. The landlord should agree the proposed security at Heads of Terms stage, including the amount, the identity of any guarantor and the circumstances in which the security can be used or released.
A rent deposit is normally documented through a separate rent deposit deed rather than being written into the lease itself. The Heads of Terms should identify:
A personal guarantee creates significant obligations for the guarantor, and it must be drafted and executed properly to be enforceable. Our lease guarantor documentation service covers both the deposit deed and the guarantee so the two documents work together rather than contradicting each other.
A landlord should investigate whether the tenant's proposed activities are compatible with the property's planning position and any legal restrictions. The Heads of Terms should name the intended permitted use and allocate responsibility for obtaining consents, rather than assuming a business can operate simply because the unit is available to let.
Different uses carry very different planning, licensing, building and operational consequences. A prospective tenant might intend to operate any of the following, and each needs checking on its own facts:
The planning use class is not necessarily the same as the permitted use covenant in the lease. You should also check whether existing title covenants or superior lease restrictions prevent the proposed activity.
Where the proposed use is borderline, our change of use consent solicitors can advise whether a formal application or a simple lease permission is the right route, and our planning and zoning advice team can deal with the local planning authority.
Before agreeing Heads of Terms, a landlord should consider the property's physical condition and relevant statutory compliance information. Depending on the building and letting, this may include an EPC, asbestos information, fire safety documentation, electrical and gas records, surveys and details of known defects or planned works.
The documents needed depend on the property and the law that applies to it. At minimum, consider:
The lease should allocate these responsibilities properly rather than leaving them assumed. Our lease compliance solicitors review these obligations as part of the letting process.
A landlord should make sure the Heads of Terms clearly explain the rent, payment frequency, VAT position, rent free incentives, rent review mechanism and additional charges. These points directly affect the landlord's expected income and the tenant's occupation costs, so ambiguity tends to produce arguments during drafting or after completion.
| Financial term | What to agree |
|---|---|
| Base rent | Amount and payment dates |
| Rent free period | Duration and any conditions |
| Rent review | Review dates and calculation method |
| VAT | Whether VAT is chargeable on rent and other sums |
| Service charge | Scope, apportionment and any cap |
| Buildings insurance | Who arranges cover and who pays |
| Rent deposit | Amount and release terms |
| Legal costs | Who pays each party's costs |
The rent review clause deserves particular attention. Poorly worded assumptions and disregards can make a review impossible to operate when the date arrives. Our guide to open market rent review explains how the mechanism should be structured, and our rent review solicitors can advise on the wording before it goes into the lease.
Repairing obligations can create substantial liabilities for both parties. The Heads of Terms should state whether the tenant is taking a full repairing and insuring lease, an internal repairing lease or another arrangement, and whether a Schedule of Condition will limit the tenant's liability.
A tenant taking an older warehouse will often resist unrestricted responsibility for the roof and structure. The parties might negotiate:
A Schedule of Condition only helps if it is expressly incorporated into the repairing covenant. Agreeing it in the Heads of Terms and then forgetting to reflect it in the lease is a genuinely common and expensive mistake. For background, read our guide to full repairing and insuring obligations.
The landlord should decide whether the proposed business tenancy is intended to benefit from statutory security of tenure. Where the Landlord and Tenant Act 1954 applies, a qualifying tenant may have renewal rights. A valid contracting out procedure can exclude those rights, but the prescribed requirements must be followed before the tenancy is granted.
This decision belongs in the Heads of Terms, not in a later conversation. Contracting out is not simply a clause added at the end. The statutory warning notice and tenant declaration requirements must be handled correctly, and the timing matters.
If you are letting a commercial unit and want flexibility at the end of the term, our Landlord and Tenant Act 1954 solicitors can advise on the procedure. If you are a new landlord, start with our overview for first time commercial landlords.
Assignment, subletting and break clauses control the landlord's future hold on the property and its income. The Heads of Terms should state whether the tenant can transfer or underlet, what consent is required, and whether either party can end the lease early under a break clause.
Landlords should settle in advance:
Bear in mind that consent to assignment and subletting is regulated by the Landlord and Tenant Act 1988, which requires you to respond to a consent application within a reasonable time. Our landlord consent applications team deals with these requests routinely, and our guide on whether a tenant can sublet the whole premises explains where landlords can reasonably draw the line.
Commercial lease Heads of Terms are usually intended to record an agreement in principle rather than create an enforceable lease. Their legal effect depends on their wording and circumstances. Clearly marking them subject to contract helps show the transaction remains conditional on formal documentation.
Landlords should also identify any provisions intended to bind the parties separately. These commonly include:
Where binding commitments are intended, they should be carefully drafted and properly executed. Do not assume that every provision becomes non-binding simply because the document carries the label Heads of Terms.
Letting a tenant into occupation before formal completion can create legal and practical risk. Depending on the circumstances, the parties' conduct may give rise to an unintended tenancy or other occupation rights. If early access is genuinely necessary, the landlord should take advice and use an appropriately drafted arrangement.
A prospective tenant may ask for access to:
Access for inspection is a different thing from granting possession for trading. Where early access is agreed, the purpose, duration, insurance, liabilities and termination arrangements should all be documented. Our licence to occupy agreements service is often used to bridge that gap safely.
If you are letting premises that need alteration before occupation, our licence to alter team can document the works and the reinstatement obligations at the same time.
A landlord should approve Heads of Terms only once the proposed tenant, property, financial arrangements and principal lease obligations have all been considered. The checklist below is a practical framework, but it should be adapted to the building, the tenant and the transaction rather than treated as a substitute for legal advice.
If you want the lease itself drafted to match what you have agreed, our landlord friendly lease drafting service starts from the Heads of Terms and builds the protection in from the outset.
Common questions from landlords about Heads of Terms documents and checks.
Agreeing Heads of Terms is more than negotiating a rent and a lease length. For a commercial landlord it is the moment to check the tenant's reliability, verify the property's legal position and identify the financial and legal risks that will sit with you for years.
Good preparation prevents the problems I see most often:
The most effective approach is simple. Finish the relevant checks before you treat the commercial terms as agreed, and let your solicitor see the draft document before it goes out. If you are comparing this letting with existing arrangements elsewhere in your portfolio, our guides on commercial lease title due diligence and landlord buildings insurance in a commercial lease cover the detail.
At Commercial Lease Specialists we help commercial landlords understand and negotiate the legal terms of proposed lettings. Our solicitors act for landlords across England and Wales, from first time investors letting a single unit to portfolio owners with multi-let estates.
Planning to let a commercial property? Contact Commercial Lease Specialists for advice before agreeing Heads of Terms or allowing a prospective tenant into occupation.
This article provides general information about commercial leasing in England and Wales. It is not a substitute for advice on a particular transaction.