Heads of Terms and Letting

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Goodman Grant’s Ifath Khan looks at leaseholds and heads of terms

When negotiating the terms of a deal, parties should consider various issues and agree the details of any terms set out. These heads of terms will then help the legal team of both parties in drafting around the principals agreed.

All parties concerned will prefer that terms are clear from the very beginning and are not negotiated further down the line, as this can cause delay, which, unfortunately, can happen if important issues are left unaddressed.

What is relevant to any deal will depend on its complexity and the particular requirements of a client, but certain issues are fundamental. Key terms which should be considered within the context of a lease and, possibly, the instructions of a local surveyor, should be sought to determine the standard terms within the area the property is to be let.

Extent of let property
Are the entire premises to be let or part let? If only part of the building is to be let, a plan will be need to show the extent of the area to be let. The plan also needs to comply with the Land Registry’s requirements in terms of scale and location indicators.

Annual rental
The level of the rent and the frequency of the annual payments should be carefully considered.

Contractual period (i.e. the number of years)
In this respect, it is important to note that unless the lease specifically states that the tenant is losing his statutory rights to security (known as contracted out) at the end of the agreed term, the tenant will be entitled, in most cases (although potentially subject to a higher rent), to remain in occupation.

Break clause
This is in regards to whether the tenant or the landlord should be entitled to terminate the lease early.

Insurance
Is the landlord to insure and reclaim the premium from the tenant? It is common in commercial leases for the landlord to arrange the building’s insurance, but to pass the cost on to the tenant, so that the landlord can ensure that their asset is fully insured.

Services
If only part of the building is let, will the landlord carry out maintenance of the exterior and structural parts, and reclaim a proportion from the tenant? If so, percentage contributions will have to be considered.

Rent reviews
It is essential to determine how frequently the rent should be reviewed (every three or five years is common) and whether this should be on a market basis (usually with provision that the rent reviews can only go upwards). A less common approach is for the rent to be increased annually in line with the Retail Prices Index.

Repair
Is the tenant to accept full responsibility for repair of the property where the whole of it – internally and externally – is let?

Decorating periods
It is frequently the case that the landlord would prefer the tenant to decorate the property.

Permitted use
The permitted use is usually in regards to a dental practice, but this can be extended so that the tenant is permitted to use the property for other purposes – either within the D1 user class (which includes dental use), or as offices or residential space.

Assignment and sub-letting
Usually the tenant should not be allowed to deal with only part of the property, and any assignments or subletting of the whole of the property can only be with the landlords consent. This can be withheld if the sub-tenant/assignee is not of suitable financial standing. Other reasonable conditions to this consent may also be imposed, such as the assignee providing a guarantor. In the case of sub-letting, it is typical for the sub-lease to be contracted out.

Alterations
The standard term is that non-structural alterations may be permitted with prior written consent.

Other issues
Other matters unique to the transaction should also be considered. For example, if the tenant is dependent on fixed term orthodontic contracts, then they may wish to seek a tenant break in the event they are unable to secure a further contract.

Heads of terms show the intent of the parties but do not legally bind them to go on and complete the lease. Either party can still change their mind and not enter into the lease. However, if the basic principles are agreed from the outset, the transaction will conclude swiftly to the satisfaction of all concerned.

It is always worth consulting with experienced dento-legal solicitors who can provide reliable advice and guidance to ensure you avoid any pitfalls.

Author

Ifath Khan is a Director at Goodman Grant Solicitors, where she has worked in commercial law for over a decade. Her area of expertise is property, including the acquisition and disposal of commercial and residential property, as well as property, landlord and tenant matters. She also has experience in purchases and sales of businesses and can be contacted on This email address is being protected from spambots. You need JavaScript enabled to view it.

For more information about Goodman Grant, visit www.goodmangrant.co.uk or call your nearest office, London: 0203 114 3133, Leeds: 0113 834 3705, or Liverpool: 0151 707 0090