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  4. Buying a Commercial Property – Drafting Heads of Terms (HOTS)

Introduction

Heads of Terms (often abbreviated to HOTS) set out the principal commercial terms agreed between buyer and seller before solicitors are formally instructed.

While not legally binding (in most cases), Heads of Terms provide a framework for the transaction and help prevent misunderstandings later in the process.

What Are Heads of Terms?

Heads of Terms are a written summary of the key commercial points agreed in principle, including:

  • Price or consideration
  • Proposed timetable
  • Conditions
  • Key legal and financial assumptions

They are usually prepared by the selling agent, but buyers should review them carefully.

1. Why Heads of Terms matter

Well-drafted HOTS:

  • Reduce the risk of disputes
  • Save time during legal negotiations
  • Help solicitors work more efficiently
  • Clarify responsibilities early

Poorly drafted or ambiguous HOTS can lead to delays, renegotiation or failed transactions.

2. What should be included in Heads of Terms

Typical HOTS include:

  • Property details
  • Purchase price
  • Deposit (if applicable)
  • Tenure (freehold or leasehold)
  • Conditions (subject to contract, survey, finance)
  • Timetable for exchange and completion
  • VAT position (where known)
  • SDLT responsibility
  • Capital allowances position
  • Costs (who pays what)

Not all items will apply to every transaction, but omissions can create uncertainty.

3. Subject to contract

Heads of Terms are usually expressed as subject to contract, meaning:

  • They are not legally binding
  • Either party can withdraw before exchange
  • Legal obligations arise only once contracts are exchanged

Buyers should be cautious about undertaking significant costs before contracts are agreed.

4. Agreeing HOTS before legal instruction

Agreeing Heads of Terms before instructing solicitors is generally considered best practice.

This:

  • Reduces unnecessary legal costs
  • Prevents wasted time
  • Improves transaction momentum

Solicitors can then focus on implementing agreed terms rather than renegotiating them.

5. Reviewing HOTS carefully

Buyers should review Heads of Terms carefully and ensure they reflect:

  • The agreed commercial position
  • Any special conditions or assumptions
  • Their funding and tax structure

Professional advice may be appropriate where transactions are complex.

What Comes Next

Once Heads of Terms are agreed, the legal process begins.

This is covered in the next section:

Buying a Commercial Property – Undertaking Local Searches.

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