Using heads of terms in commercial leases and commercial property transactions 

When you’re negotiating a new commercial lease or buying a property, one of the first documents you’ll come across is the heads of terms. Think of it as the deal on a page: a summary of the key points the landlord and tenant (or buyer and seller) have agreed before the detailed contract is drafted.

Heads of terms aren’t usually legally binding, but they matter. They set expectations, highlight potential sticking points, and give your solicitor a clear starting point for preparing the lease or sale contract. Done well, they save time, reduce misunderstandings, and help avoid expensive disputes later.

In this guide, our expert commercial property solicitors explain what heads of terms are, why they’re important, and what to look out for before you sign. Whether you’re a landlord, tenant, or buyer, getting these early negotiations right from day one makes the rest of the process smoother and safer.

What are heads of terms, and are they legally binding? 

Heads of terms are essentially a written record of the deal you’ve agreed in principle. They set out the main commercial points before the detailed contract is drawn up.

Normally, heads of terms are not legally binding. To make that clear, they should always be marked ‘subject to contract’. But beware: in rare cases, the courts have treated them as binding if the wording suggests that’s what the parties intended. That’s why it’s important to get legal advice from experienced commercial property solicitors before you sign, even at this early stage.

Well-drafted heads of terms can:

• Flag up issues early, so you don’t waste time negotiating an unworkable deal
• Give everyone clarity on how the transaction will be structured
• Make the legal drafting stage quicker and cost-effective

In today’s market, where flexibility and sustainability are increasingly important, heads of terms also give you the chance to agree key points such as green lease clauses or early break rights upfront -rather than leaving them to the last-minute.

Who usually prepares heads of terms for commercial property deals?

In most cases, heads of terms are prepared by the landlord, seller, or their agent (often a commercial surveyor). The draft is then shared with the other party for review and negotiation.

While surveyors usually take the lead, it’s becoming more common for solicitors to be involved at this stage, especially on more complex deals or where the terms need to reflect modern market concerns like energy efficiency obligations, service charge caps, or flexible break rights.

If you’re a tenant or buyer, it’s easy to assume you can just accept what’s put in front of you. But heads of terms set the tone for the whole transaction. Getting commercial property solicitors to review them early can help you spot hidden costs or restrictions before they’re locked in, and make sure the terms reflect your business needs from the start.

What’s included in heads of terms for a commercial lease or property deal? 

Heads of terms should give a clear, practical summary of the deal. The exact details will vary, but most will cover: 

• Who’s involved - the landlord/tenant or buyer/seller, and any guarantors for a lease
• Property details - address, a description of the land (including a plan) 
• Price or rent - how much, when it's paid, and how often
• Property specific issues such as rights the seller/landlord wants to keep over any land they retain
• Costs - whether each side pays its own legal and professional costs, or if one party covers both) 
• Timing – key dates for completion or lease start
• Conditions - things that must be sorted before the deal can complete (such as getting planning permission or board approval)

Extra points for commercial leases include: 

• Lease length (the term) - how long the lease will run 
• Security of tenure - this means whether your lease is covered by the Landlord and Tenant Act 1954, which can give you the legal right to stay in the property / renew your lease when it comes to an end.
• Break clauses - options for either side to end the lease early, and any conditions to satisfy before you can exercise this right. These are increasingly important in today’s market, especially for SMEs who want flexibility.
• Rent review - when and how the rent can change (eg linked to market rent or inflation).
• Rent-free period - sometimes offered at the start of the lease to help tenants with fit-out costs before moving in
• Rent deposit - if a deposit is payable, how much and when it will be returned to the tenant
• Services and service charge – what services the landlord will provide for properties that form part of larger buildings/estates, how much it will cost the tenant (for eg, for the upkeep of shared areas) and whether there are any caps to protect against unexpected hikes.
• Insurance - who organises property insurance, what it covers and how it's paid
• Use - what the property can (and cannot) be used for
• Assignment and subletting- if and how the tenant can pass on the lease
• Repair - what state the property must be kept in, and whether a schedule of condition will limit tenant liability. Read our post  Is a tenant responsible for repairs and maintenance in a commercial lease? for more information on this. 
• Alterations and signage - what alterations and signage the tenant can make and whether the landlord’s consent is needed. 
• Fitting out - if a tenant needs to carry out alterations to the property to make it fit for use, then the extent of the alterations may be agreed at this stage. 
• Sustainability and ESG obligations - who pays for energy-efficiency upgrades or compliance with green lease clauses, which are becoming increasingly important in today’s market.

Other agreements – sometimes extra documents are needed alongside the lease. For eg:

• a rent deposit deed (confirming how the deposit will be held and returned)
• a licence for alterations (if the tenant wants to carry out fit-out works)
• an agreement for lease (a contract that says both parties must enter into the lease once certain conditions are met - such as the landlord finishing building works or the tenant getting planning consent).

These aren’t always required, but if they are, it’s vital they’re flagged in the heads of terms so everyone knows what’s expected.

Can heads of terms change later?

Heads of terms can change as the deal develops. They’re not usually legally binding, but that said, they do carry commercial weight. If one party tries to backtrack, it can damage trust and weaken their negotiating position.

In practice, terms often shift because circumstances change – for eg, survey results highlight an issue, or finance takes longer to arrange. That’s normal, but it’s important to continue to track the heads of terms to ensure that any changes are picked up in the documentation and the core deal stays intact.

What happens after heads of terms are agreed?

Signing the heads of terms

This might be done by the landlord or tenant themselves, or sometimes by their surveyors or agents. Because heads of terms aren’t normally legally binding, the person signing doesn’t have to be a company director - but they do need the authority to commit to the draft deal.

To avoid confusion, the document should always be marked ‘subject to contract’. That way, everyone is clear that the deal isn’t legally binding until the full lease or contract is signed.

Next steps after signing: drafting the detailed contract or lease

Signing heads of terms is only the beginning. The next step is for solicitors to take those agreed points and turn them into the full lease or sale contract.

These documents are often lengthy, technical and difficult to navigate, which means it’s easy for extra obligations or subtle changes to slip through unnoticed. As part of the process, we’ll carefully check that the final contract reflects what was set out in the heads of terms, pulling out the key terms and highlighting anything that doesn’t line up.

What are the risks of signing heads of terms too early?

It can be tempting to sign heads of terms quickly so you can ‘get the deal moving’. But moving too fast can create problems later on. Some common risks include:

• Agreeing to unfavourable terms without realising it – once something is written into the heads of terms, it can be much harder to renegotiate. You may lose bargaining power if you later want to change key areas such as the rent, service charge, or repair obligations.
• Overlooking important details – vague wording around core terms means that your solicitor may end up spending valuable time ironing out the issues with the other side during the drafting stage (taking longer to wrap up the deal).
• Binding obligations sneaking in – although heads of terms are usually ‘subject to contract’, some clauses (such as exclusivity/lock-out periods, confidentiality, or costs) can be legally binding. Signing without legal advice could tie you in more than you intended.
• Missing modern issues - today’s property market is shaped by two big themes:
  • Flexibility - many SMEs want shorter leases, clear break rights and options to sublet or assign. If these aren’t captured at heads stage, you could end up stuck in a lease that doesn’t fit your business as it grows or changes.
  • ESG and sustainability – landlords are increasingly building in obligations around energy efficiency, green fit-outs and data sharing on energy use. If you don’t address these upfront, you might face unexpected costs for upgrades or compliance later.
• Wasting time and money – put simply, if the heads of terms don’t properly reflect your needs, you may find yourself embroiled in lengthy renegotiations or end up with a deal that doesn’t stack up for your business, all the while incurring costs.

At Harper James, we regularly review heads of terms before they’re signed. A quick sense-check from us at this stage can save weeks of negotiation later and associated costs.

Do I need a solicitor before agreeing heads of terms?

Putting together detailed and effective heads of terms can be tricky. Depending on the size of the transaction, it often makes sense to have a surveyor act for you. They deal with heads of terms every day and can advise on whether the terms are commercially reasonable.

But we also recommend having a solicitor review the heads of terms before you sign. That way, expectations are managed from the start and you’re protected against problems once the deal moves into the legally binding stage. This is especially important for clauses that can cause disputes later, such as break clauses, which often don’t work as intended if they’re not agreed in enough detail at heads of terms.

Our experienced commercial property solicitors can review your heads of terms quickly, highlight any risks in plain English, and give you confidence that your deal is on the right track.

Summary

Heads of terms are a crucial step in commercial lease negotiations, setting out the main points of agreement before the full lease or contract is drafted. While they are not usually legally binding, signing them too early or without proper review can lock you into unfavourable terms, leave hidden or unclear clauses unaddressed, and create costly disputes or delays later. Carefully reviewing each clause, seeking legal advice when needed, and ensuring clarity upfront can save time, money, and stress down the line. Get in touch with our team today.