Are Heads of Terms legally part of the Lease?

[RSQ]

Are the Heads of Terms Part of the Lease.

In the original lease I was provided with a copy of the Heads of Terms. However, In the final amended lease, I have not been provided with the Heads of Terms and been informed this is not part of the lease. My concerns is that the Heads of Terms contained information that is not discussed in the lease. Can you please provide some clarification on this matter.


Thanks

[Editor]

This has been discussed previously on other posts in this commercial section.

Heads of Terms are a statement of intent or summary of the main lease and consist of core terms upon which negotiations can be started and agreed in principle, but subject to agreement on the main lease which is far more detailed.

HOT can be very useful in focussing the parties’ minds on the key issues but they also hold dangers for the unwary.

Usually the parties do not intend them to be legally binding on their own, if they then fail to go on to reach a more detailed lease agreement, but in the past courts have held them to be binding.

If you have agreed heads of terms, subject to contract, then by implication these must be incorporated into the lease, otherwise there can be no agreement on a final lease contract.

[Don Beech]

Is this a legally binding document, ie. when agreed neither party can back out of the lease?

Does it need to be signed but both parites, or just offered by landlord and agreed by tenant?

Cheers.

[Editor]

Agreeing Heads of Terms is a negotiation process between landlord and tenant, where the terms proposed are not binding and are subject to contract.

Heads of Terms allow the parties to hammer out the details and argee in principle, before going to the greater expense of having the solicitors/s draw up the contract/lease.

You may find this useful:

http://www.leasingbusinesspremises.co.uk/downloads/head_terms_print.pdf

[Don Beech]

Great ta.

I was rather hoping they were, guess I will have to wait until the lease is signed then.

[Lawcruncher]

"Heads of Terms" could be a binding contract if signed by or on behalf of both parties and they otherwise complied with Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. However, they are usually headed "Subject to Contract".

[Don Beech]

It's just emails at the moment I'm afriad.

I'm the prospective tenant in this one, and as I need to give 3 months notice to my current landlord I am trying to avoid to much duplication of rent. But it seems I cant really give notice to my current one until the lease has been signed for the new one.

[davidjpowell]

you can, but you have to brave and take a giant leap of faith in mankind!

Detailed heads of terms are always a good idea, and most lawyers thank agents for these, rather than leaving the solicitors to battle on every point!

[Lawcruncher]

Detailed heads of terms are always a good idea, and most lawyers thank agents for these, rather than leaving the solicitors to battle on every point!

So long as we get good ones without anything silly in them, because then you are faced with the "it is in the heads of terms" argument. A sensible surveyor will get his client's conveyancer to cast his eye over his draft heads of terms before going to press with them.

[Don Beech]

Hey....

I though you guys might be interested in this.

As trustee landlord I made a CC claim for reimbursement of landlords costs (insurance etc) in accordance with the agreed and documented Heads of Terms in 2003. The claim was for costs since 2004 - 2009 totaling some £2000. No formal lease was in place for the term of the claim.

Via his solicitor, the tenant claimed the HoT was not legally binding and refused to make payment.

The Hearing was scheduled for 7th May 2010, but I agreed to the free mediation service to hopefully avoid the need to actually hold it.

Via mediation the tenant offered £1000. I rejected but advised I would accept £1500. Tenant agreed to pay £1500.

So, cost the landlord £115 in court costs, and several hours of my time (not charged for in isolation - I'm on a fixed fee for everything I do) but no legal costs as I didn't use a solicitor, but at least got more than we would have had I not made the CC application. No idea what the tenants costs were, by the correspondence and court submission from their solicitor I'm guessing £500 - £1000.

It would have been nice to have seen whether or not a judge would have made an award on the basis of the HoT to get a definitive answer to the question, is it legally binding?

On to another tenant in the same building now that is 4 months in arrears in rent and 6 months arrears in utility charges. Hmmmm ....

[Lawcruncher]

If there is no written lease then I think the heads of terms have to be what set out the obligations and rights of each party.

This is another reason for landlords not to let tenants in on the basis that the lease will be sorted out later. If a tenant really wants to get in he will make sure his solicitor gets on and deals with the lease.

[Qwalme]

Hi Don,

I'd be interested to hear how you handle the T in rent/utility arrears if you plan to try and avoid solicitors.

I'd like to recoup some rent arrears from a T without involving a solicitor but fear I may need their advice.

Q

[Don Beech]

Qwalme.

I have today filed a CC claim using the money claim online system.

There is a signed short lease confirming that they are liable and I don't see that I need any further proof than that for a small claim.

The money claim online is fairly simple and you certainly dont need a solicitor to do it.

[Mrs Dingle]

If you have a "Heads of terms " document which is written at the same time as the lease. Is this document part of the lease and enforcible as if it were written into the lease?

Not sure whether it is or not.

The lease was signed and entered into on the basis of the "heads of terms".

Now 3 years into the lease the terms in that document have not been met.

Can they be inforced?

To be brief. Part of the premises were unavailable untill 2.5 years after the lease started due to landlords storage and are now still not available for use due to structural building failings. So substancial loss of income.

[jeffrey]

As this thread's previous posts explain, Heads of Terms are simply preliminary details of what the parties initially agree. To that extent, see them as akin to an Estate Agents usual form of 'Particulars of Sale Agreed' circulated to each party and each party's solicitors.

In your case, the Lease is what counts unless- exceptionally- it states that an Agreement for Lease's contents continue to operate in respect of any obligations not yet satisfied (which is, for example, a clause in the Standard Conditions of Sale).

[Mrs Dingle]

So if within the "Heads of lease" it is stated that a building will be made good to a " just decoration state" within 6 months. This may not be legally binding?

[jeffrey]

It might or might not- depends if Heads of Terms created an enforceable and binding contract.

[Mrs Dingle]

How will I know if that is the case. Is there something written that I can look for.

£5000 was held back at the suggestion of the solicitor to complete the works within 6 months.

Would this make the "heads of lease" binding?

[jeffrey]

No, but the retention must be on the basis of some written terms- so where are they and what do they say?

[Mrs Dingle]

Spoke to the solicitor today who confirmed that the heads of terms were not part of the lease and arbitration may be the only way forward. This will cost a lot of money.

My questions are:-

1. If it took 6 months for the 2 solicitor's to work out The "heads of term" satisfactory to both parties. Delaying the signing of the lease till it was agreed. Why was it not included in the lease? ( solicitor said it was a standard lease drawn up with nothing added).

2. Whose fault is it that the tenant's are now faced with costly arbitration to establish what is binding?

[jeffrey]

Don't know.
1. Either there should have been an Agreement for Lease or the lease should have contained the missing obligation.
2. This depends on what each solicitor's instructions were.

[kachanski]

I signed a lease 3 1/2 years ago. Beforehand my L solicitor & mine assisted in drawing up some Heads of terms. Most of these terms refered to the landlord putting the property in a good state of repair leaving decoration to myself the T. It was written into the terms that we would withhold £5000 of the cost of the lease back for 6 months as an incentive for my L to carry out the work within the set time.
My L compleated almost none of the works listed in the heads of terms and so I never paid the £5000 to him.
After many solicitors letters requesting that my landlord carry out the work we have not got anywhere. My landlord has recently tried to put up my rent by 25% and I have refused.
My solicitor is now suggesting ether a Part 8 Claim or appointing an arbitrator.
I am unsure which is the best route.
I suspect that my L is not in a financial position to pay for the outstanding work.
Will either the County Court or the arbitrator be able to enforce the decissions they make. I do feel that either would rule in my favour.
Or after all of my trouble and expence is it likely that I still will not be able to get these works carried out?

These outstanding works not being done are having a devistating effect on my business and I need to move forward as a matter of urgency.

Arbitrator or Part 8 Claim???
What are the pro's & cons?

and are either enforceable?

[Landlord9467]

Hello,

I hope someone can shed some light on this situation.

A LL wants to make changes to the previously okayed Heads of Terms and is worried that if the T does not agreed that they will still have to pay the EA their fees. This is because the agent says the fees are still liable if the LL pulls out once terms are agreed for whatever reason.

Is there any way out of this? The LL ultimately doesnt want to follow through with a lease since the timescale involved is no longer viable and for other reasons.

Any thoughts would be most appreciated.

Thanking you in advance,

[Don Beech]

So you think the agent should not get paid for all the work they have done on behalf of the landlord?

Does the landlord work for free?

[Landlord9467]

Thank you for your input.

Please can someone offer some advise without placing moral judgement. I thought this was the landlord zone and not judge judy!

Thanks in advance to anyone who can rise above petty comments and provide useful input. The situation is more complicated than expressed. There is a rent review in the heads of terms for example, though it doesn't mention any caps which the T wants in the lease. The date for commencement is 2 weeks and there is no way the solicitor can organise in time. The LL wants to keep the deposit in their account but the T wants in solicitor account, etc..... so the finer details of heads of terms are not working out!

[davidjpowell]

Seems a bit harsh given that the agent has secured a letting.

I would suggest that either the LL should ask the agent to work with him to rescue the situation and to renegotiate Heads of Terms to something more acceptable. The agents job certainly does not stop when Heads have been issued.

If it's just an excuse to avoid paying fee's then perhaps a conversation and a compromise may be the best way forward.

[Lawcruncher]

If the situation is something like this:

1. Agent agrees heads of terms with landlord.

2. Agent agrees heads of terms with tenant.

3. The matter is referred to solicitors.

4. Landlord decides he wants to change heads of terms whether or not on solicitor's advice.

5. Tenant wishes to proceed in accordance with heads of terms.

Then I think the agent has a case for his commission unless there is something in the heads of terms that was prejudicial to the landlord that the landlord did not appreciate was prejudicial.

However, if in 4 and 5 we swap over "landlord" and "tenant" the situation is different.

But it may not be that straightforward. Heads of terms do not cover everything nor go into detail. Once the matter gets into solicitors' hands each side's solicitor may have different ideas of what should be in the lease. In a tenant's market in particular the tenant's solicitor will be looking for concessions on the basis of "if you don't ask you don't get". If because of a disagreement over what is to go in the lease the tenant withdraws (and in my experience that rarely happens) it is difficult to see how the agent can claim his commission as he would need to show who was being unreasonable. It is not like a straightforward sale where it is far easier to determine if the buyer is "ready, willing and able" to complete.

[Longshot]

Morals aside, there must be an agreement between the agent and the landlord? Check what it says.

I would expect it states that the agent is due at least an abortive fee.

[jeffrey]

L has to pay A's fees, come what may, unless the Agreement is 'no transaction, no fee'.
But T might be liable to repay A's fees to L, by indemnity, if:
a. the Heads of Terms so oblige T; and
b. T's solicitors gave an unqualified undertaking.

[Landlord9467]

All Your comments have certainly helped.

Especially Lawcruncher. You hit the nail on the head and have covered all aspects too; making the post useful to others!

Many thanks!

[Moderator1]

Several largely similar questions on separate threads have been merged into this thread (hence the repetitive nature of answers).

[Moderator1]

Posts under the title 'Nothing in writing- so what Notice from T to L?' have been moved from this thread to http://www.landlordzone.co.uk/forums/showthread.php?36249-Nothing-in-writing-so-what-Notice-period-from-T-to-L