Terms and Conditions or Heads of Terms as they are legally known as for a new lease are usually negotiated between the Tenant and Landlord before property lawyers are involved.
By the time the lawyers become involved both parties are keen to proceed and are usually unwilling to renegotiate these terms.
The Heads of Terms are the basis upon which the lease will be drafted and it is incredibly difficult for a tenant’s lawyer to negotiate any points which should have been addressed at the initial negotiation, even where the Tenant has not understood the nature or implications of what it has agreed.
It is therefore advisable to have a property lawyer look at the Heads of Terms before they are agreed in order to make sure a Tenant is getting the fairest deal possible. Some of the key things to look out for are as follows:
Repairing obligation – a Landlord will try to place an obligation on the Tenant to keep the property in a good state of repair and condition, sometimes referred to as a full repairing and insuring (“FRI”) lease. This means that the Tenant has to put and keep the property in a good state of repair and condition even if it is in a poor state of repair at the time of the lease. A Tenant should therefore look to limit this liability so that its obligation is limited to keeping the property in the same condition.
Option to break – a Tenant may wish to negotiate an option to end the lease at specific periods or on a rolling basis. The Landlord may agree to this but sneakily put in pre-conditions which need to be satisfied by the Tenant for this right to break to be effective. This could include giving “vacant possession” or there being “no breach of any obligations within the lease”. These can be legal “trip ups” to the Tenant which could prevent an effective exercise of a break option.
Service charge – the lease may require the Tenant to pay a service charge to the Landlord for services they provide for the property. However, if the lease is for a short term then a cap on the service charge could be negotiated or the service charge could exclude the costs of any improvements to the Landlord’s property or any contribution to a sinking fund. For example, if the Landlord chose to build a brand new car park for the property then it would not be fair for the Tenant to have to contribute a large amount of money to this, only for them to vacate the property before they ever see the benefit of it.
Seeking legal advice before any Heads of Terms are agreed could greatly save tenants in the long run.