Negotiating Heads of Terms

When looking to enter into a lease of new premises, healthcare organisations should look to agree detailed commercial heads of terms with the proposed landlord before solicitors are instructed to prepare the lease documents. Having a detailed set of heads of terms will ensure that the transaction is completed quicker and in a more cost effective way.  Here are some of our top tips for points that should be considered and negotiated into heads of terms:

  1. Break and termination provisions – tenants often give a lot of focus on the length of the proposed lease, but do not give enough attention to the inclusion of break/termination provisions allowing the lease to be broken early. This is important for flexibility and future proofing for changing plans particularly in the ever changing healthcare sector.

    Is your occupation of the property linked to a service contract for the providing of health services from the property perhaps?  If so, and appropriate break provisions are not included in the lease (and negotiated at the heads of terms stage), should that service contract expire or be terminated early the lease will remain in place and you will remain liable for its terms (and the payment of rent) despite having no service to provide from the property.

    Consideration should also be given to the inclusion of general rights to break at regular intervals during the term, to allow for the most flexibility and changing plans.  If this can be agreed at the Heads of Terms stage, landlords are often willing to provide further concessions (such as additional rent free periods) should the right to break not ultimately be exercised.

    An important point which is often overlooked at the heads of terms stage are the conditions which the landlord will attach to a tenant’s right to break the lease.  Landlord’s will attempt to include conditions which are as wide ranging as possible, often leading to a tenant being unable to effectively exercise the right to break.  If these conditions can be limited and appropriate wording included in the heads of terms to document what these are to be, the lease can be drafted accordingly by the landlord’s solicitor.  If not, the landlord’s solicitor will draft the lease with onerous break conditions and it will be very difficult for your solicitor to water these down as part of the lease negotiation.

  2. Service Charge Caps – given ever rising utility and other costs, tenants are increasing looking at ways to limit their expose to increased costs during the term of their leases. This is particularly prevalent with the payment of service charge – tenants are often obliged to pay a fair and reasonable proportion of the service costs incurred by a landlord (or a relevant proportion linked to the floor area of the premises occupied).  But should the landlord’s service costs suddenly jump, a tenant is left exposed to these unknown increased costs.  A way to limit such exposure is to include a service charge cap within the lease.  Whether a landlord will agree to such a cap will largely depend on the commercial bargaining power of the landlord and tenant. But this subject should be discussed with the landlord at the outset of the transaction, at the heads of terms stage (with any agreement documented with the final set of heads of terms).  If this does not happen, and the subject is raised with the landlord during the course of the lease negotiation, it will be very difficult commercially to get the landlord to agree to the inclusion of any cap.
  3. Repair obligations and schedule of condition – it is well known that a tenant will always be obliged to keep the premises it occupies in repair (and be liable for the costs of the same). But a point often overlooked by tenants when negotiating terms with a landlord are a tenant’s obligations at the end of a lease.  In general terms, a tenant will be obliged to hand the premises back to the landlord in good and substantial repair and condition.  And this will apply even if the premises are in a state of disrepair at the start of the lease when the tenant first occupies the premises – although the tenant has inherited the disrepair, it will be obliged to remedy this and hand the premises back to the landlord with any such disrepair made good.  Often an agreement will be reached with the landlord for a tenant to not actually carry out any necessary repair works, and instead pay a capital sum to the landlord for the landlord to carry out the works itself.  This sum can come as a surprise at the end of a lease and be something that is not budgeted for.  A way to limit such exposure is to agree to include a schedule of condition in the lease – this will document the condition the premises are in at the start of a lease and limit a tenant’s repairing obligation to such condition.  So if the premises are in a state of disrepair when the property is first occupied, a tenant will not be obliged to remedy that disrepair (or pay for the same) on lease expiry.  Again, this is something that must be discussed with the landlord and negotiated for as early as possible and documented within the heads of terms.

This list is by no means exhaustive and there are a number of other points that need to be considered when negotiating terms for a proposed lease. Our team here at Sintons are experts in negotiating leases in the healthcare sector and would be more than happy to assist to ensure that the best possible terms can be negotiated.

Richard Hartis is a Partner in the real estate team specialising in the healthcare sector. To speak to Richard about anything raised in this article, you can contact him on 0191 226 7881 or

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