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A heads of agreement (HOA) is the document which summarises the key commercial terms of a leasing transaction. It is usually the first document you will sign before receiving the lease. As a national tenant, there are two key considerations to be aware of when you receive the heads of agreement:

  • standard national clauses (whether there are any standard clauses specific to your business which needs to be included); and
  • premises specific clauses (whether there are any additional clauses to be included due to the specific requirements or limitations of the premises).

Ensuring that the HOA addresses all key clauses means that you will not need to worry about making amendments or negotiating changes to these issues when you receive your lease.

Standard National Clauses

If you operate on a national level, there are certain clauses which you may need to include in the heads of agreement and as part of all of your leases, to ensure there is consistency across all states and territories. Some common clauses are set out below.

Permitted Use

One of the most important terms of a lease is the permitted use of the premises. When you operate on a national level, we recommend that you have a standard and consistent permitted use terms across all of your leases to avoid any issues in the future.  

For example, if you are running a hairdressing salon and the permitted use of one lease allows you to sell related shampoo and hair products while the permitted use of another lease does not, this means your businesses will not be able to operate the same way across all states.  

Ensuring that your heads of agreement has the correct permitted use across all your leases means that the landlord is clear about the operation of your national business from the beginning and you will not have issues with negotiating or amending the permitted use for your lease.

Trading Name

Your trading name is important, as it is the brand that your customers or clients will recognise your business by. If you are planning to attach the name of the centre or location to your trading name at the premises, you should ensure that you have obtained landlord’s consent. Some landlords may prohibit a tenant from using the name of the shopping centre or building in its trading name without consent, so it is important that both parties are aware of the trading name and your intentions upfront.

Signage

If your business has particular signage requirements, you should include this in your HOA. 

For example, if all your business outlets have signs which are in a particular style or size, you should clarify with the landlord whether or not this will be permitted. 

Some shopping centres or buildings may only allow you to install signs visible from the outside which are in the same consistent style as other shops in the same building. Any signage which the landlord has consented to should be expressly included as part of the HOA and lease.

Preconditions

If operating your business requires you to meet certain conditions, it is important to include this under your HOA as a condition before the lease may commence. 

For example, if you are running a restaurant which sells alcohol and you require a liquor licence.

Ideally, the HOA will state that the lease will provide you with a termination right if you do not obtain that condition within a set period of time.  

Franchising

If your business is a franchise, or if you are planning to turn it into a franchise in the future, you might want to consider including a franchising clause as part of your HOA. This is a clause which essentially allows you to licence out the premises to a potential franchisee. The franchisee will be permitted to provide any required bank guarantees, bonds and insurance.  

Premises Specific Requirements

While it is best to make certain terms of your lease as consistent as possible across all states, it is important to bear in mind that each premises will have its own specific limitations or requirements. You should ensure that where premises do not meet your operational needs, you address these issues in your HOA.

Services and Utilities

Each premises will have different provisions in terms of the services or utilities it can provide. This might include water and electricity connections to your premises. Depending on the type of business you run, you might require specific connections in order to run your business.  

For example, if you are running a gym and know that you will require additional air conditioning, you should check any relevant electricity supply or connections to ensure this will not be overloaded. 

It is important that when inspecting each individual premises, you check what services are available and include any additional connections in your HOA.

Trading Hours

The trading hours will differ between centres or buildings. If you require certain trading hours to apply to your business which are outside of the centre’s set trading hours, it is important to include this as part of your HOA.  

For example, if you run a 24/7 gym, you must make this clear to the landlord.

Landlord’s Standard Lease

Some landlords may include statements in the HOA requiring the tenant to use its standard lease. This is particularly the case where you are dealing with a major landlord, such as the landlord of a big shopping centre like Westfield.

A common statement to this effect may be, “the landlord’s standard centre lease will apply amended only to reflect the commercial agreement contained in this HOA”.  If this is the case, it is prudent to amend or delete this in order to state that the lease will be agreed by the parties’ legal representatives. If you fail to do so, it may be difficult to negotiate changes to the landlord’s standard lease.

Key Takeaways

As a national tenant, the most important point to remember when negotiating and signing a heads of agreement is consistency across key terms for all the leases you will enter into. Additionally, you should always inspect a premises to be aware of any site-specific requirements or limitations that you need to address early on in the HOA. If you need help with a lease, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.

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