Newspaper article The Journal (Newcastle, England)

Forewarned Is to Be Forearmed

Newspaper article The Journal (Newcastle, England)

Forewarned Is to Be Forearmed

Article excerpt

Byline: By Richard Freeman-Wallace

Heads of terms are key to lease deals. They do not form legally binding contracts but set out the basic commercial terms between the parties.

Once agreed, it can be exceedingly difficult to seek to re-negotiate a term that had previously been agreed at heads of terms stage. It is important not to commit anything to writing or agree heads of terms without advice from a specialist commercial property lawyer.

Issues covered within heads of term:

* Lease or licence: Which are you getting? How well defined is the area you occupy and can the `landlord' move you around? This may be straightforward if offices or shops are let but not if it is parking spaces or storage areas.

* Security of Tenure: If not `contracted out', the tenant can stay on at lease-end and must be granted a new lease unless the landlord succeeds in ending it under the Landlord and Tenant Act.

Length: The term should be fixed for a set period but can the landlord or tenant terminate it early? On what grounds? Has the tenant a right to extend it?

* Rent and service charge: The lease must specify whether the rent is all-inclusive, fixed or basic.

* Rent-free periods: Is there one? This is traditionally to cover cost to the tenant of fitting out new premises. Sometimes the rent-free period is longer, as a incentive to the tenant.

* Rent review: Heads of terms should specify if the rent is to be reviewed, how frequently and upon what basis. Traditionally, it's reviewed every three or five years and to the higher of open market levels at review date and rent payable just before the review.

With average lease lengths shortening every year, more landlords are looking at annual rent increases or every three years in each case tied to rises in RPI.

Rent reviews tied to Retail Price Index do not involve some of the more convoluted calculations that arise if rent is reviewed to open market levels. …

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