Heads of terms run to a page or two and are rarely legally binding, yet they decide most of what ends up in your lease. A point that is missed or loosely worded at this stage can leave you with a lease that is hard to get out of, expensive to repair and difficult to pass on. Here is what heads of terms are for, when parts of them can bind you, and what a tenant should settle before signing.
Heads of terms are often agreed quickly, by email between agents, when the tenant is keen to secure the premises. But this is the point at which the tenant has the most leverage. Once they are agreed, the landlord's solicitor drafts the lease on the basis that the commercial deal is done, and reopening a point is slow, awkward and often unsuccessful.
Heads of terms record the main commercial terms in outline before either side runs up significant legal costs. Done well, they flush out any deal-breakers early and let the solicitors produce a first draft that reflects what was actually agreed. They are not a mini-lease and should not deal with routine drafting.
A useful test
Would you be unhappy to see this point decided by the landlord's standard form? If so, it belongs in the heads of terms.
Usually the landlord's letting agent, who is instructed and paid by the landlord. The first draft will naturally reflect the landlord's preferred position.
Where the agent is a member of the Royal Institution of Chartered Surveyors, the RICS Code for Leasing Business Premises 2020 (the Lease Code) helps. It requires written heads of terms marked "subject to contract" before a draft lease is sent, and requires the agent to tell an unrepresented party about the Lease Code and recommend professional advice. It also sets out the minimum content of heads of terms and what RICS regards as good practice on most lease terms, which a tenant can rely on in negotiation even if the landlord is not bound by it.
Pitfall
Without your own agent or solicitor, you are negotiating against a professional who acts for the other side.
Heads of terms are almost always marked "subject to contract", which in England and Wales will normally prevent a contract arising. In Farrar v Rylatt [2019] EWCA Civ 1864 the Court of Appeal confirmed that the label applies to the whole document, so individual clauses cannot be picked out as binding.
There is also a statutory safeguard. Under section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, a contract for a lease of more than three years must be in writing, contain all the agreed terms and be signed by both parties. Even unlabelled heads of terms did not create a binding lease in Pretoria Energy Company (Chittering) Ltd v Blankney Estates Ltd [2023] EWCA Civ 482, but it would be unwise to rely on that. Always use the label.
The real risk comes from conduct, not paperwork. In exceptional cases the courts have found parties bound despite the label because they acted on the deal (ProForce Recruit Ltd v The Rugby Group Ltd [2005] EWHC 70 (QB)). In a letting, that usually means taking the keys early, starting the fit-out or paying rent while the lease is still being negotiated. A short lease needs no written document, so a tenant let into occupation who pays rent can end up with a periodic tenancy on terms nobody intended. If you need early access, have the solicitors document it with a short licence or agreement.
Pitfall
Taking the keys, starting works or paying rent before the lease is signed can create a tenancy on terms neither side wanted.
Even though they are not binding, heads of terms should be accurate. A party that tries to move away from them later will usually find itself in a weak position.
Exclusivity (a "lock-out"). A tenant about to spend money on surveys and legal fees may want the landlord to stop negotiating with anyone else. That can be enforceable, but only as a proper contract in its own right for a fixed period. An open-ended agreement to negotiate is too uncertain (Walford v Miles [1992] 2 AC 128). Put it in a short separate agreement. If the landlord breaks it, the usual remedy is your wasted costs, not the lease.
Confidentiality. A confidentiality statement in non-binding heads of terms will not usually be enforceable. If it matters, for example because your move has not been announced, sign a separate confidentiality agreement.
Legal costs. Under section 1 of the Costs of Leases Act 1958, each party pays its own costs of a lease unless they agree otherwise in writing, and heads of terms are not enough. Any contribution to the landlord's costs, including if the tenant withdraws, must go into the lease or a separate binding document. For the tenant, the real questions are whether to pay the landlord's costs at all, and if so, subject to what cap.
Pitfall
A lock-out or confidentiality clause written into non-binding heads of terms will usually be worthless.
The minimum content set out in the Lease Code covers the premises and any rights, the term and security of tenure, break or renewal rights, any deposit or guarantee, rent review, service charge, repair, assignment and subletting, and alterations. These are the points that most often cause problems later.
Name the company that will actually occupy and trade, by its full registered name and company number, and identify any guarantor the same way. Check both at Companies House. In Seafood Shack Ltd v Darlow [2019] EWHC 1567 (Ch), the named tenant had not been incorporated. A late change of tenant causes delay, as the landlord may need fresh checks and, for a contracted-out lease, a fresh warning notice.
Describe them clearly, ideally on a plan, with parking, delivery access, space for plant and rights over common areas. A right that is not in the heads of terms may not make it into the lease.
State the term and whether the lease will be protected by the Landlord and Tenant Act 1954. A contracted-out lease simply ends on its expiry date, with no right to a new lease and no statutory compensation. If you will need the premises for longer, resist contracting out or ask for an option to renew. If it is contracted out, the warning notice must be served before you commit, so start early.
Put the date, the notice period and the conditions in the heads of terms. The Lease Code recommends that a tenant's break should depend only on paying the basic rent to the break date and leaving with no subtenants in place. Any stricter conditions should be agreed now, not introduced in the draft lease.
Pitfall
"Tenant break at year five" is not enough. Break rights are most often lost on the conditions, which will otherwise be set by the landlord's draft.
State the rent, any rent-free period, when rent starts and whether VAT is charged. Set out how often rent will be reviewed and on what basis, whether market rent, an index or fixed increases. The ban on upwards-only rent reviews in the English Devolution and Community Empowerment Act 2026 is not yet in force, so you may still be offered one, but you can ask for the review to work both ways.
If the premises are not in good condition, limit your repairing obligation by reference to a schedule of condition, and agree who pays for it. If the landlord is doing works before you move in, describe them and when they will be finished.
Pitfall
Without a schedule of condition, a standard repairing covenant can require you to hand the premises back in better condition than you took them.
Record that you will be fitting out, that the landlord will consent on the basis of your drawings, whether you must remove the works at the end, and who pays. Works you pay for should be disregarded at rent review, so you do not pay rent on your own investment. If the landlord contributes, expect the works to count at review.
Confirm you can assign or sublet the whole with the landlord's consent, not to be unreasonably withheld, and share occupation with group companies. Ask for an authorised guarantee agreement to be required only where reasonable, for example where the incoming tenant is financially weaker.
Agree the amount, duration and scope. Ask for any deposit to be held in a separate account with interest belonging to you, and for the deposit or guarantee to be released once your accounts show profits at an agreed multiple of the rent, not only on assignment.
Agree how the service charge is calculated and whether it is capped. A cap is far easier to win now than once the lease is drafted. Confirm the landlord insures, and that if the premises are damaged by an uninsured risk either party can end the lease unless the landlord agrees to rebuild.
If the letting depends on planning permission or the consent of a superior landlord or lender, say so, and make clear the lease will not complete until that consent is obtained in proper form.
The detailed drafting of the repair, insurance and service charge clauses, rent review mechanics, notices and standard boilerplate are for the solicitors. Settling them between agents slows the deal without improving it.
What should not be left to the solicitors is any point of commercial substance. The landlord's solicitor drafts from the heads of terms and the landlord's standard form, so anything not mentioned will be dealt with in the landlord's favour unless your solicitor negotiates it back, and that is harder once the commercial terms are treated as agreed.
Check the draft lease carefully against the heads of terms and raise any difference. The same applies in reverse. If something was agreed during negotiations but is not in the final lease, you may not be able to rely on it. Most commercial leases contain an entire agreement clause excluding anything said or written beforehand, including the heads of terms. Business Environment Bow Lane Ltd v Deanwater Estates Ltd [2007] EWCA Civ 622 is a reminder that anything that matters must be written into the lease itself.
For a typical letting of offices, a shop or an industrial unit, these are the points a tenant should settle.
This article is general information on the law of England and Wales as at October 2026. It is not legal advice on any particular transaction, and you should take advice on your own circumstances before agreeing heads of terms.
Lawyerly's commercial lease solicitors advise tenants on heads of terms and leases. You can read more about how we work on our commercial lease solicitors page.