Consider this if…
- An agent has sent you a heads of agreement or offer to lease to sign
- You have been asked to pay a deposit or holding fee before the lease is drafted
- You are not sure whether what you are signing is binding
- The document says "subject to lease" and you do not know what that means
- You are a landlord and want the commercial terms recorded properly before drafting
- You have already signed one and the lease that arrived does not match it
How it works
Send us the document
The heads of agreement, offer to lease or term sheet, plus any emails from the agent setting out what was agreed. Those emails matter more than people expect.
Today
We tell you whether it binds you
Whether the document is intended to create obligations now, which parts survive if the lease is never signed, and what your position is if you walk away.
First thing we do
We check the commercial terms
Term and options, rent and the review mechanism, outgoings, incentive and fit-out contribution, guarantees, permitted use, and make-good. Anything left blank here is decided by the landlord's solicitor later.
With the review
You get our comments in writing
Marked up, with the changes we would ask for and a short note on which of them are worth pressing and which are usually conceded.
With the review
We carry it through to the lease, if you want
Reviewing the lease when it arrives and checking it against what was agreed. Quoted separately so you can stop here if you prefer.
Quoted before we start
Fee
Quoted in writing before we start
GST inclusive
We quote a fixed fee in writing before any work begins.
Richmond-based commercial leasing lawyers advising businesses, landlords and tenants across Melbourne and Victoria
Abbots Legal is a Richmond-based commercial leasing law firm advising landlords and tenants across Melbourne and Victoria on heads of agreement, offers to lease, commercial lease negotiations, retail lease reviews and lease disputes. If you have been sent a heads of agreement or offer to lease, we review it before you sign and tell you what is binding, what is still open for negotiation, and what should be recorded before the lease is drafted.
The document that sets the lease is usually signed before the lease is read
Most commercial and retail leases start with a one or two page document: a heads of agreement, an offer to lease, or an agent's term sheet. It records the commercial terms — rent, lease term, option periods, rent-free periods and incentives, outgoings, permitted use, security deposits, bank guarantees and personal guarantees, make-good, fit-out and landlord works, assignment and renewal — and it is usually signed quickly.
The problem is that those terms are then written into the lease by the landlord's solicitor. Anything left vague, one-sided or unmentioned in the heads of agreement is usually decided in the landlord's favour later. And while almost everything is negotiable now, much less is negotiable once the heads of agreement is signed.
Binding, non-binding, or unclear
A heads of agreement can be:
- Expressly non-binding, with only limited obligations such as confidentiality, exclusivity or costs surviving if the lease is never signed.
- A binding agreement to lease, in which case walking away without signing the lease may be a breach.
- Silent or contradictory, in which case the answer depends on the wording, the surrounding correspondence and what the parties did afterwards.
The heading "Heads of Agreement" does not settle the question. Whether the document is a legally binding agreement, subject to lease, subject to contract, or simply an agreement to negotiate is a matter of construction. We tell you which of those you have before you commit.
What we look at in a heads of agreement review
Rent and rent reviews. The starting rent and the review mechanism across the whole lease term. A fixed percentage increase compounds, and what looks modest in year one can become significant later.
Lease term and option periods. How long the lease runs, what renewal rights exist, and when strict notice periods must be met to exercise an option.
Rent-free period and incentive. Rent-free periods, fit-out contributions and other incentives, and how they interact with make-good and the final lease terms.
Outgoings. What the tenant is expected to contribute to, stated clearly enough that the lease cannot expand it.
Permitted use and exclusivity. What you are allowed to do in the premises, and in a shopping centre, whether a competitor can be placed next door.
Security deposit, bank guarantee and personal guarantee. The amount and duration of any bank guarantee, whether a cash security deposit is required, and whether a personal guarantee is being requested. A personal guarantee removes the protection of trading through a company, so it should be a deliberate decision.
Make-good and fit-out. The condition the premises must be returned in, who owns the fit-out at the end, and whether landlord works are required before you take possession. These two clauses are frequently agreed by people who do not realise they are connected.
Assignment and renewal. Whether you can assign the lease if the business is sold, and on what terms landlord consent may be required.
From heads of agreement to signed lease
Where the document says subject to lease or subject to contract, we check whether it actually achieves what it appears to. Where it is an agreement to lease, we identify the obligations that survive even if the formal lease is never signed.
The heads of agreement also governs the lease negotiations that follow. If the commercial terms are recorded clearly and fairly, the drafting of the lease is usually smoother and the disputes that arise at signing are fewer. If they are not, the terms of the lease that eventually arrives may not reflect what you thought had been agreed.
Where this goes next
If the heads of agreement looks right, the lease should be checked against it when it arrives; the two do not always agree. If you are a retail tenant the disclosure statement matters as well. Either way, the heads of agreement review is the short, inexpensive step that makes the later work smaller.
Frequently asked questions
Are Heads of Agreement legally binding?
They can be. A heads of agreement may be expressly non-binding, partly binding (for example, on confidentiality, exclusivity or costs), or a binding agreement to lease. Many are simply unclear. The label on the document does not decide it — the wording, the surrounding correspondence and the parties' conduct do. We tell you which category yours falls into before you sign.
Should I have a lawyer review a Heads of Agreement?
Yes. By the time the lease is drafted, the commercial terms are usually settled in the heads of agreement. Reviewing it before you sign is the cheapest point to change rent, incentives, guarantees, make-good or permitted use. Once signed, your negotiating position is much weaker even if the document is not strictly binding.
What should a commercial lease Heads of Agreement include?
It should record the key commercial terms clearly: rent, lease term, option periods, rent-free period or incentive, outgoings, permitted use, security deposit or bank guarantee, personal guarantee, make-good, fit-out and landlord works, assignment and renewal rights. It should also state whether it is binding or subject to lease, and who pays the costs if the lease does not proceed.
Can I negotiate the lease after signing Heads of Agreement?
Sometimes, but your leverage is reduced. If the heads of agreement is a binding agreement to lease, the landlord may be able to insist that the lease reflects what was agreed. If it is non-binding or subject to lease, more remains open. The point is to know which position you are in before you sign, not after.
What is the difference between Heads of Agreement and a lease?
A heads of agreement records the commercial deal in principle. A lease is the formal contract that creates the tenancy and contains the legal obligations. The heads of agreement sets what the landlord's solicitor will draft into the lease; if something is missing, vague or one-sided there, it often appears in the lease the same way.
What does "subject to lease" mean?
It usually means the parties are not committed until a formal lease is signed. Whether it actually achieves that depends on the rest of the document and how the parties have behaved. It is not a phrase that automatically makes every other term provisional, which is why we read the whole document before you sign.
What happens if I sign Heads of Agreement and the lease terms change?
It depends on whether the heads of agreement was binding. If it was, the landlord may have to produce a lease consistent with it, and you may have remedies if they do not. If it was not binding, the lease terms can move. Either way, the first step is to compare the two documents and understand your position before the lease is signed.
Does a Heads of Agreement need to be signed?
Not always, but signing makes it easier for either party to argue it was intended to be binding. Even an unsigned term sheet or email chain can create problems if the parties start acting on it. That is why we review the document and the surrounding correspondence together.
Related services
Tell us if you have been asked to sign by a particular date.
Send us the heads of agreement