TL;DR: Heads of terms (also called heads of agreement or letter of intent) set out the key commercial terms agreed before a full commercial lease is drafted. They are usually non-binding on the substantive lease terms but create a roadmap for the lawyers. Getting heads of terms right reduces negotiation time, cost, and the risk of deals falling apart at the lease stage.
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When a business agrees in principle to take a commercial property, the landlord and tenant (or their agents) exchange heads of terms. This document summarises the key commercial points of the deal — rent, term length, break clauses, service charge, and more — before solicitors are instructed to draft the full lease.
Heads of terms serve several purposes:
Most heads of terms are expressly stated to be "subject to contract" and non-binding on the lease terms. The full lease, once signed, supersedes them. However, some specific provisions within heads of terms — particularly confidentiality and exclusivity — may be expressed as binding.
A clear description of the premises including:
What the tenant is allowed to use the premises for. Be specific — "retail" or "office" is not enough. State the specific use class (in the UK, Use Class E for commercial, business, and service; Class B2 for industrial). A restrictive use clause can limit what you do with the premises if your business evolves.
Landlords often grant a rent-free period at the start of the lease, particularly for longer leases or when a tenant is fitting out the space. Agree upfront:
For leases longer than 3 years, agree how and when the rent will be reviewed:
Many commercial leases require tenants to contribute to the cost of maintaining and managing common areas and building services. Agree:
A break clause allows either the landlord or tenant (or both) to terminate the lease early. Agree:
Break clauses are valuable to tenants — they limit the risk of being locked into a lease if the business needs change. Negotiate them carefully and ensure conditions are achievable.
The tenant's rights to deal with the lease:
Most commercial leases restrict these rights significantly. Negotiate reasonable terms at the heads of terms stage.
The tenant's right to alter or fit out the premises:
The tenant's obligation to keep the premises in good repair. Agree:
Some landlords require a rent deposit (typically 3–6 months' rent) or other security. Agree the amount and the terms for its return.
If the landlord is contributing to or carrying out fit-out works, set out:
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Try it free →| Country | Typical lease term | Rent review | Security of tenure | Heads of terms formality |
|---|---|---|---|---|
| UK | 5–25 years (office); 1–5 years (retail) | Upward-only 5-yearly; CPI common | Landlord and Tenant Act 1954 gives security of tenure (can be excluded) | Usually non-binding; "subject to contract" |
| France | 9-year minimum (bail commercial); 3-year break rights | ILC index (Indice des Loyers Commerciaux) 3-yearly | Strong tenant protection under bail commercial | Protocole d'accord; usually non-binding |
| Sweden | Negotiated; typically 3–5 years | CPI annual | No automatic renewal right; negotiated | Avsiktsförklaring; non-binding |
| Australia | 3–10 years + options to renew common | CPI or market review | State-based retail tenancy legislation; commercial leases less protected | Usually non-binding |
| New Zealand | 3–6 years standard; rights to renew common | Market review; CPI less common | No statutory right of renewal; negotiated | Usually non-binding |
| Canada | 3–10 years; options to renew | Market review or CPI; varies by province | No general statutory protection; Quebec differs | Letter of intent; usually non-binding |
| USA | 3–10 years typical; longer for anchor tenants | CPI (full or partial pass-through) or market review | No general federal protection; state law varies significantly | LOI; usually non-binding |
Sources:
Before signing heads of terms, a tenant should check:
Treating heads of terms as binding: Unless specific provisions are expressly stated to be binding, heads of terms do not create a binding lease. Do not give up other options or incur significant costs on the basis of heads of terms alone.
Vague rent review wording: "Upward only at market rent" means very different things depending on the detailed lease wording. Agree the mechanism clearly at heads of terms stage.
Ignoring break conditions: Break clauses that require "vacant possession" and "all obligations performed" are hard to exercise. Negotiate conditions that are realistic to fulfil.
Not checking permitted use: A permitted use that is too narrow may prevent you from expanding or pivoting your business without landlord consent.
Skipping the schedule of condition: Without a schedule of condition (a photographic and written record of the property's state at the start), you may be required to return it in better condition than you received it.
Q: Are heads of terms legally binding?
Usually no — they are typically expressed as "subject to contract" and non-binding on the substantive lease terms. However, specific provisions such as confidentiality, exclusivity, and costs may be expressed as binding. Read the document carefully.
Q: Can I walk away after signing heads of terms?
Typically yes, since they are non-binding. However, if you have expressly agreed exclusivity (during which the landlord will not negotiate with other parties), you may have a binding obligation for that period. Repeated failure to proceed after agreeing heads of terms in a particular market may also damage your reputation with commercial agents.
Q: Do I need a solicitor to review heads of terms?
Heads of terms are the foundation of the full lease negotiation. Having a commercial property lawyer review them before signing saves significant legal cost later — it is far easier to negotiate commercial terms before the full lease is drafted than to unpick them mid-drafting. MmowW Scrib🐮 can help you organise your documents, but a lawyer should review the substantive commercial terms.
MmowW Scrib🐮 helps you prepare and organise the documents surrounding commercial lease negotiations across 7 countries, including:
Use our free tools:
Cost Calculator — Estimate preparation costs for lease-related documents across jurisdictions.
Name Checker — Confirm the correct legal entity name before entering into lease commitments.
Director Checker — Verify director details when preparing board resolutions to authorise a lease.
Filing Deadlines — Track any registration or filing deadlines associated with the lease (such as Land Registry registration in the UK for leases over 7 years).
Employment Checker — When taking new premises for an expanding team, check employment compliance for your jurisdiction.
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