Heads of Agreement Review for a Commercial or Retail Lease

A heads of agreement sets the terms a lease will later be built on. We review it, and advise on what it means, before you sign.

What Is a Heads of Agreement?

A heads of agreement is a short document that sets out the main terms proposed for a lease before it is formally drafted. It may also be called heads of terms, a letter of intent, or an expression of interest. For a commercial or retail lease it typically covers the premises, the term and any options, the rent and how it will be reviewed, who pays outgoings, any incentive or fit-out contribution, and the security required from the tenant.

It is usually put together quickly, by an agent or between the parties directly, before either side has taken legal advice. The terms in it tend to carry through into the formal lease largely unchanged, because renegotiating a point once it has been agreed on paper is harder than raising it at the outset.

Is a Heads of Agreement Binding?

A heads of agreement is generally intended to record terms in principle, not to bind either party to them. Whether it actually is binding depends on what the document says, whether it fixes the essential terms of the lease, and how the parties behave afterwards, not on the heading at the top of the page. A document titled heads of agreement that settles premises, term, rent and the other essential terms, and is signed by both parties without a clear statement that it is subject to contract, can be treated as a binding agreement to lease.

For a retail shop lease in NSW, this matters beyond contract law. The Retail Leases Act 1994 (NSW) requires the landlord to give the tenant a disclosure statement before the lease is entered into. If a heads of agreement fixes the lease terms and is treated as the point the lease was entered into, it can bring that disclosure obligation forward, before the tenant has had the chance to review it alongside the lease itself.

We advise on whether the document you have been sent is binding, and on the wording needed to make sure it is not binding unless and until that is what you intend.

What We Check Before You Sign

Binding status

Whether the document is expressed to be, or risks being treated as, binding on you.

Premises and permitted use

That they match the business you intend to carry on from the site.

Term, options and rent review

Fixed increases, CPI, market review, and how any ratchet clause operates.

Outgoings and incentives

Who pays what, and how a fit-out contribution or rent-free period is secured.

Security

The bank guarantee or bond amount, and any personal or director's guarantee.

Retail disclosure timing

Whether the sequence you have been given complies with the Retail Leases Act, for retail leases.

How It Works

01

Send us the heads of agreement

02

We review it and advise you in writing on what it means and what it commits you to

03

You raise anything that needs to change before you sign

04

If you go ahead, we act for you on the lease itself once it is drafted

Heads of Agreement or Agreement for Lease?

These are different documents, and we act on both. A heads of agreement is an informal record of proposed terms, usually not intended to bind either party, made before the lease is drafted. An agreement for lease is a binding document, entered into now, committing both parties to enter into a lease later, once something else happens first, such as the landlord completing fit-out works. If what you have been sent commits you to a fixed outcome rather than recording terms for further discussion, it may be an agreement for lease rather than a heads of agreement, and needs to be reviewed as one.

Fees

Fees for reviewing a heads of agreement, and for acting on the lease that follows it, are set out on our pricing page.

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Related leasing services at Corporate Legal.

Commercial LeasingRetail LeasingAgreements for LeaseLease Variations

Common Questions

What is a heads of agreement?
A short document recording the main terms proposed for a lease before it is drafted - premises, term, rent, outgoings and security - so both sides know what they are agreeing to before the formal lease is prepared.
Is a heads of agreement legally binding?
Not usually, but it can become binding depending on how it is worded, whether it settles the essential lease terms, and how the parties act afterwards. We check this before you sign.
Do I need a lawyer to review a heads of agreement?
It is not compulsory, but the terms in it usually carry through to the lease largely unchanged, so it is the easiest point to fix a problem term - before it has been agreed to in writing.
What happens after I sign the heads of agreement?
The lease is drafted to reflect its terms. If we acted on the heads of agreement, we then act for you on the lease itself.
Can the terms still be changed once the lease is being drafted?
In principle yes, but in practice a term already recorded in a signed heads of agreement is harder to reopen than one raised before signing.
Does a heads of agreement affect my rights under the Retail Leases Act?
It can. If it fixes the lease terms and is treated as the point the lease was entered into, it may bring forward the landlord's disclosure statement obligation. We check the sequence you have been given against the Act.
What is the difference between a heads of agreement and an agreement for lease?
A heads of agreement is an informal, usually non-binding record of proposed terms. An agreement for lease is a binding document committing both parties to a lease once a condition is met, such as construction being completed. See our Agreement for Lease page.
How much does a heads of agreement review cost?
See our pricing page for the current fee.

Reviewed Before You Sign

Send us the heads of agreement you have been given and we will advise you on it, before it becomes a lease.

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