Commercial Lease Heads of Terms (HOTs) - What are they and why are they important?
- Author: Patrick 'Pat' Richards
- Posted on: 22nd October 2019
- Posted in: Blog
Commercial Law- What are the HOT's and why do I need them?
Armed with a sound business plan, the usual referees (bank, accountant, trade) lined up, off I go searching for (usually) leasehold retail premises. Either privately, or through a commercial selling agent, I find exactly where and what suits my venture. I even have a friendly and helpful solicitor with the right experience and contacts who might be willing to offer a brief and free initial consultation.
Upon reaching agreement in principle and before incurring expenses of any survey, due diligence, searching, enquiries and drafting documentation, it is wise for the parties to record the principal terms of the transaction in writing. This is referred to (“Subject to Contract”) Heads of Terms (HOTs), a memorandum of understanding, or a letter of intent.
Why are Heads of Terms (HOTs) so important?
Whatever their form, their purpose is to provide a brief, non-legally binding record of the outline terms of the transaction at a particular stage in the negotiating process. It reduces the time and effort of discussing details of the transaction reserved to a later stage, avoids misunderstandings, identifies difficult issues early on and provides a convenient and helpful basis of instructions to the solicitor. Specific early attention will be given as to whether you would have permitted User, which party is paying whose costs (to include the “ in any event” up-front costs of the Landlord’s Solicitors) and assessing your bargaining strength.
Separate considerations with an equally helpful accountant will apply if you are purchasing a business as a going concern in conjunction with the assignment of an existing or new lease. If an existing lease, obtain a copy for early scrutiny. Don’t be shy of asking the tenant or agent for information about service charges and whether the lease is renewable. The Institute of Chartered Surveyors (“ARICS”) publishes a very helpful HOTs model on its website.
Want to know more about HOTs?
Leasing commercial premises can be a complex area of law. It is advisable to seek independent legal advice at an early stage to ensure you are prepared for the process and guided through each stage by an experienced solicitor. This will help avoid any potential problems in the future and reduce the risk of committing to a lease that may not be suitable for you and your business.