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Agreeing Heads of Terms

7th April 2014

Agreeing Heads of Terms

When negotiating a lease for an office there are three main points that ingoing tenants tend to focus on. Firstly, the length of the term of the lease; how long are they going to be able to stay in the space and when will they have an option to break the lease. Secondly, the rent; how much is it going to be per annum which leads on to a rent-free period. How much of the lease they are able to negotiate where they have a rent fee allowance. These of course are very important points to negotiate and often are the difference in whether a company looks to move forward in taking the space.

Once these main points are agreed there are a number of other points, which are vital to have agreed up front before handing over to solicitors. It is a nightmare handing over to solicitors before all of the commercial points within the lease have been agreed. This would often lead to a typical reason why a deal may ‘fall out of bed’. 

One of the most important areas to consider is around the service charge. If a building has not been newly refurbished then it is usually important to look to negotiate a service charge cap. The reason being that if the landlord decided to do work to the building, for example put a new lift in or re-do the roof, then they can charge the cost of this to the tenants through the service charge. There have been cases where tenants have been stung by large bills for works that were not on the agenda when they moved in. Therefore, negotiating a service charge cap is important to prevent this. As the market is getting tighter and tighter landlords are able to be more bullish in negotiations and may refuse to offer a cap. This might be something an ingoing tenant may choose to take a view on. In this case, it is important to look at the last three years of service charge accounts for the building.

There are a number of other important points to consider when negotiating Heads of Terms and it is important to have a professional advising you in order to make sure you do not agree to points which may be onerous in the future. 

This news was brought to you by Morgan Pryce, a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.

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