Heads of Terms Commercial Property UK Guide

Overview

Heads of terms are a written summary of the main commercial points agreed between a buyer and seller, or a landlord and tenant, before formal contracts are drafted. In commercial property, they are most often produced by the agents handling the transaction, though sometimes the parties or their solicitors prepare them.

The document records things like the property, the price or rent, the length of a lease, and any conditions that need to be satisfied before the deal can proceed. Most heads of terms in England and Wales are drafted on a 'subject to contract' basis, which means the commercial points are not legally binding until a formal contract or lease is signed.

That said, certain clauses within heads of terms, such as confidentiality, exclusivity, or who pays costs if the deal falls through, are often intended to bind the parties from the moment they are signed. Because of that mix, it pays to read them carefully and understand which parts you are actually committing to.

Key steps

1. Identify the parties and the property accurately. Set out the full legal names of the buyer, seller, landlord or tenant, along with company numbers where relevant. Describe the property clearly using the address, any title number, and a note of what is and is not included, such as car parking, storage, or shared areas. Ambiguity here causes problems later when solicitors start drafting.
2. Agree the core financial terms. For a sale, this means the purchase price, whether VAT applies, and how any deposit will be handled. For a lease, it means the annual rent, rent-free periods, rent review pattern, service charge arrangements, and any tenant incentives such as capital contributions or fit-out allowances. Spell out what the rent covers so there are no later surprises.
3. Set out the key dates and lease length. Record the target exchange and completion dates for a sale, or the proposed lease start date and term length for a letting. If there are break clauses, say who can operate them, when, and on what conditions. If the lease is intended to be inside or outside the Landlord and Tenant Act 1954 security of tenure provisions, state that clearly.
4. List the conditions and assumptions. Note anything the deal depends on, such as satisfactory surveys, planning consent, landlord consent to assignment, or board approval. Flag any assumptions each side is relying on, like the property being sold with vacant possession or a specific use being permitted under the existing planning consent.
5. Address costs, exclusivity, and status. Confirm that the heads of terms are 'subject to contract' and therefore not binding in relation to the commercial terms. Separately, decide whether provisions on confidentiality, exclusivity (lock-out), and legal costs should be binding, and say so in terms. Then circulate to both solicitors before anyone signs.

Common questions