Thrings Commercial Property team represented a tenant client that needed to relocate temporarily whilst substantial works were being undertaken to its head office. Heads of Terms were agreed by the client with regard to a short term lease of space in a nearby multi let building.
The client did not seek professional advice when agreeing the Heads of Terms for the letting. The Heads of Terms provided for an 18-month lease term with a tenant rolling break at the 12-month point, on a full repairing and insuring basis. There was an obligation for the tenant to pay a fair share of the costs incurred by the landlord for the repair and maintenance of the building and the external circulation areas and car parks, as a service charge.
When the tenant client approached Thrings to deal with the review and agreement of the lease with the landlord’s lawyers, we strongly recommended to the client that the Heads of Terms were renegotiated to fairly apportion the risk/potential liabilities as between the landlord and the tenant to reflect the practicalities of the situation – namely a short-term letting.
After a degree of negotiation with the landlord’s legal team, Thrings managed to negotiate into the lease a few key clauses. These were:
- A clause limiting the tenant’s repairing obligations in the lease to a photographic schedule of condition recording the condition of the property at lease start
- A clause ring fencing the tenant from capital expenditure with regard to statutory compliance
- A clause agreeing a service charge cap
Several months following completion of the lease, the client contacted Thrings to explain that they had received a very large service charge demand from the landlord. It transpired that a footbridge spanning the river connecting the car parks to the building required significant maintenance and these costs had been passed on to the tenants of the building via the service charge.
Both the landlord and the tenant had overlooked the service charge cap. Thrings was able to point the landlord to the service charge cap that had been negotiated into the lease, and the client paid the service charge cap as opposed to the much larger service charge sum initially demanded by the landlord.
Advice for tenants – always take professional advice when negotiating Heads of Terms.
The case has highlighted the importance of taking professional advice early when negotiating Heads of Terms. It is important to tailor the Heads of Terms to the specific circumstances of each letting and the specific requirements of each tenant, there is no “one size fits all”
As can be seen from the above practical example early advice can be cost effective in the longer term.
