What Are Commercial Lease Heads of Terms? A Plain English Guide

If you are taking a commercial lease, there is one document that matters more than the lease itself — and most business owners barely glance at it.

Heads of terms (sometimes called a term sheet or HoT) is the document that sets out the agreed commercial deal before solicitors start drafting the legal paperwork. It covers the rent, the lease length, the break clause, any rent-free period, who pays for what, and a dozen other terms that will define your relationship with this property for years.

Here is the critical point: <cite index="6-1">when negotiating the terms of the lease the parties will always look back to what was agreed in the heads of terms. This can have an impact on your negotiating power if looking to undo what was agreed at heads of terms stage.</cite> Concede ground in heads of terms and you will fight to claw it back for months. Protect yourself here, and the legal stage is faster and cheaper.

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What heads of terms are — and what they are not

Heads of terms are a summary of the main commercial points that both parties have agreed in principle. They are almost always non-binding — meaning neither party is legally committed to the deal at this stage. They exist to give solicitors a clear framework to draft the lease from, and to reduce the risk of the deal falling apart during legal negotiation because the parties have different expectations of what was agreed.

<cite index="12-1">The Heads of Terms (HoTs) are the commercial backbone of the deal. They're usually drafted by the landlord's agent and set out the key elements of the proposed lease, including rent, term length, rent review provisions, break options, repairing obligations, and whether the lease will be contracted out of the Landlord and Tenant Act 1954.</cite>

Because they are non-binding, some tenants treat them as a rough starting point rather than a serious document. This is a mistake. <cite index="7-1">Whether it's negotiating a rent-free period, requesting changes to repair obligations, or clarifying landlord and tenant responsibilities, this is the stage to do it. Once the lease is drafted, making changes can be more time-consuming and expensive.</cite>

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What heads of terms should cover

A well-drafted set of heads of terms covers all of the following. If any of these points are missing or vague, ask for clarification before solicitors are instructed.

Rent and payment terms The annual rent, the frequency of payment (quarterly in advance is standard), and any initial rent reduction or stepped rent arrangement.

Rent-free period <cite index="4-1">Rent-free periods vary by location, lease length, and market conditions. For a 10-year lease on UK regional office space, the average rent-free period was around 19 months in early 2025. Shorter leases attract shorter incentives.</cite> Always clarify whether a rent-free period is a true rent-free (no payments at all) or a fitting-out period that still requires service charge and insurance to be paid.

Lease length and break clause The contractual term and any tenant-only, landlord-only, or mutual break options. Specify the break date, the notice period required, and — critically — any conditions attached to exercising the break.

Rent review How and when the rent is reviewed. Open market rent review (upward only) is traditional but increasingly negotiated. Alternatives include Consumer Price Index (CPI) or Retail Price Index (RPI) linked reviews, fixed percentage increases, or no review at all for short leases.

Repairing obligations Whether the lease is a Full Repairing and Insuring (FRI) lease (the tenant takes responsibility for all repair) or an Internal Repairing and Insuring (IRI) lease (the landlord is responsible for structural and external repair). Most commercial leases are FRI. Negotiate a schedule of condition — a photographic and written record of the premises at the start of your lease — to limit your repair liability to the condition at handover.

Permitted use The specific use permitted under the lease — office, retail, light industrial, and so on. Should align with the planning use class. If your business use might change, negotiate permitted use broadly at this stage rather than seeking a variation later.

Fit-out contribution <cite index="9-1">If the property is not ready to use 'as is' then it may be possible to negotiate either or both of a rent-free period (sufficient to carry out the fit-out works) or a contribution to the fit-out works.</cite> Make any promised landlord contributions contractual — not a verbal understanding.

Alterations Whether you can make alterations to the premises, what landlord consent is required, and what must be reinstated at lease end.

Assignment and underletting Whether you can assign the lease (transfer it to another party) or underlet part or all of the premises. Standard conditions usually require landlord consent — negotiate the criteria in advance.

Security of tenure <cite index="5-1">Decide if the lease is 'inside' or 'outside' the Landlord and Tenant Act 1954. Inside the Act gives you a statutory right to renew at expiry (subject to limited landlord grounds to oppose). Outside the Act removes that right — often in exchange for other concessions like rent-free or flexibility.</cite>

Deposit or guarantees <cite index="26-1">Commercial lease deposits typically equal 3–6 months' rent, though new businesses may face 12-month requirements. Consider negotiating staged reductions, bank guarantees, or personal guarantees as alternatives to large upfront deposits.</cite>

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The 12 things to negotiate before you sign heads of terms

Think of heads of terms in two categories: terms where you want the right outcome, and terms where you want to avoid the wrong one.

Get these right:

1. Rent — benchmark against comparable lettings in the area, not just the landlord's asking price
2. Rent-free period — standard in most current markets; push for a true rent-free, not a fitting-out period with service charge still payable
3. Lease length — shorter leases with break options give you flexibility; longer leases with landlord incentives give you value
4. Break clause — push for tenant-only, with conditions limited to rent paid only (not vacant possession or no breach)
5. Landlord's fit-out contribution — particularly for space requiring significant investment to make it usable
6. Schedule of condition — non-negotiable if the property has any pre-existing defects

Avoid these mistakes: 7. Accepting upward-only rent reviews without challenge — CPI-capped reviews are increasingly available 8. Agreeing to FRI obligations on a building in poor condition without a schedule of condition 9. Overlooking reinstatement obligations — you may be required to remove all alterations at lease end 10. Leaving security of tenure ambiguous — know whether you are inside or outside the 1954 Act 11. Leaving personal guarantees uncapped — negotiate time and liability limits if a guarantee is required 12. Accepting a break clause with vacant possession conditions — these are frequently litigated and easily failed

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How long does the process take from heads of terms to completion?

<cite index="4-1">Most UK commercial lease negotiations take between 8 and 16 weeks from agreeing heads of terms to completing the legal documentation. The timeline depends on the complexity of the deal, how quickly both parties' solicitors respond, and whether there are unusual clauses to resolve.</cite> Starting early and having solicitors briefed before heads of terms are signed reduces delays significantly.

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A note on professional advice

Heads of terms are non-binding, but they are not trivial. Errors and omissions here become expensive disputes during the legal stage or, worse, obligations you live with for the duration of the lease. A RICS-qualified chartered surveyor acting as your tenant's agent can negotiate heads of terms on your behalf — and their fee is typically paid by the landlord on completion, not by you. For requirements above approximately 2,000 sq ft, this is worth exploring.

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Frequently Asked Questions

Are heads of terms legally binding?

In almost all cases, no. Heads of terms are a non-binding statement of the commercial terms agreed in principle, which solicitors use as the basis for drafting the lease. However, if your heads of terms are unusually detailed or contain specific binding commitments (for example, a binding exclusivity period or a deposit payment trigger), those specific provisions may be enforceable. Your solicitor should review the heads of terms document before you sign.

Who drafts the heads of terms?

Usually the landlord's agent, based on the terms negotiated with the prospective tenant. However, the tenant (or the tenant's agent) should review and negotiate every point before agreeing. It is a mistake to treat a landlord's draft heads of terms as a take-it-or-leave-it document — virtually every term is negotiable at this stage.

What happens after heads of terms are agreed?

Both parties instruct solicitors. The landlord's solicitor drafts the lease, usually based on the heads of terms. The tenant's solicitor reviews, negotiates, and amends the draft. Searches are carried out, planning and title matters are checked, and the lease is eventually executed. This process typically takes 8–16 weeks from agreement of heads of terms.

Can I change the terms once the lease is being drafted?

Yes, but it becomes progressively harder and more expensive as the legal process advances. Changes to fundamental commercial terms (rent, lease length, break clause) after solicitors have been instructed will require both parties to agree, may delay the transaction, and add to legal costs. This is why it is so important to negotiate thoroughly at heads of terms stage.

Do I need a surveyor for heads of terms?

Not legally, but for any commercial property above a modest size or value, a RICS-qualified tenant's agent or occupier surveyor can add significant value at this stage. They will know what comparable deals have achieved in your target market and can benchmark the landlord's proposed terms against them, identify clauses that appear standard but carry risk, and negotiate terms you might not know to ask for.

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