In the world of commercial leasing, Heads of Terms refers to a list of the main points (pre-agreed by landlords and tenants) to be included within a commercial lease. Generally, surveyors will act on behalf of landlords and tenants to agree the level of rent and other key terms of the lease before the lease itself is entered into. As lawyers, our role historically begins once Heads of Terms have been agreed upon. However, more recently we’ve seen a trend emerging amongst some of our clients, particularly those in the Tech sector, who have utilised our expertise to their advantage prior to formal agreement of Heads of Terms.
Whilst we’re not able to advise on the levels of rent, we’ve been demonstrating expertise in giving our tenant clients tips and ideas of concessions to aim for when negotiating with landlords and surveyors which ultimately save our clients’ money, increase our clients’ flexibility and minimise our clients’ risk.
On occasion, Heads of Terms can be amended further along in a transaction, but getting a good deal from the beginning places a tenant in a much better position.
What can we do for you and how is this relevant to the Tech Sector?
Broadly speaking, our input, prior to formal agreement of Heads of Terms, would be a useful tool to all tenant clients. For tech companies in particular, having knowledge of the nuances involved with running a Tech business and the requirements alongside this, are crucial to negotiating the right elements when it comes to commercial leasing.
With this in mind, there’s three key areas through which legal advice proves integral in making the most out of the commercial leasing process:
- The importance of flexibility
We appreciate that Tech companies need flexibility to grow and expand, so our preliminary guidance on break clauses and alienation (a tenant’s right to transfer the lease or sublet to a third party) rights can prove useful.
Some of you may think that you already know that these are standard terms to aim for however, our input at the Heads of Terms stage, to try to limit landlords imposing cumbersome and unfair provisions, can be vital.
English law in relation to break clauses is riddled with red-taped traps, so our guidance at this stage can ensure clients get the right break clause (allowing them the flexibility they desire) rather than the wrong one (which imposes clunky and costly conditions and, if not exercised correctly, can leave a tenant locked into the lease for the remainder of its term).
Likewise, in relation to underletting, assignments and sharing occupation, our input at this early stage can ensure that the required level of flexibility is met and our clients aren’t barred or restricted from disposing of or underletting unwanted space.
- At the tech scaleup stage, every penny counts
Another example of the importance of legal advice at the Heads of Terms stage is in relation to service charge and repair provisions. Again, we appreciate that most of our Tech clients will be letting serviced office space within a larger building. Whilst it is true that we rarely physically inspect premises, our conversations with clients and their advisers who have inspected prospective premises can ensure clients don’t foot the bill for expensive repairs to ageing buildings and the plant within it.
Service charge caps, ensuring our clients can foresee their service charge liability and don’t pay over the odds, is also a useful pointer we can give. The annual rent is, after all, only one of the many financial liabilities which a client is exposed to under a lease so our input can be vital in restricting, or at least ensuring clients can forecast appropriately, in relation to service charge.
- Time poor and connectivity dependent
Finally, support at the Heads of Terms stage will also prove useful around the quest for connectivity. Given the nature of a Tech company’s business, some have been shocked to learn how difficult it can be to establish an internet connection within a building, especially when taking a longer lease. Wayleave agreements are notoriously time-consuming and cumbersome, so ensuring that connectivity is dealt with early and that landlords are obliged to assist, at their own cost and not at the cost of the tenant (which is often the case) and in finalising wayleave agreements prior to the move-in date can be crucial.
We have seen a recent example where a tenant of high-spec office space had to agree with another existing tenant within the building to piggy back off its Wi-Fi as the Landlord and the service provider couldn’t agree the terms of the wayleave agreement and, when they finally did, the service provider couldn’t install the cabling for several months.
We appreciate that connectivity is essential to most businesses, but particularly Tech companies, so legal input at the Heads of Terms stage can ensure that this issue is dealt with properly and at the right time.
So, what does this type of support cost?
In short, nothing. Existing and new clients will receive some preliminary guidance at the Heads of Terms stage for no added cost.
We are committed to providing good value for money to all of our clients where legal fees are concerned. A quick chat with a client and review of draft Heads of Terms would expend little time for us, but could save you thousands!
If you are a prospective tenant looking to take commercial space, at whatever rent in whatever location, we would be happy to assist you in making the transition process as smooth and hassle-free as possible.
For further information on commercial leasing please contact Philip Jacques on [email protected]
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.