- Cover all major points Some heads provide too little, some too much. There is no point in trying to nail the minutiae of the transaction; that’s the job of the lawyers. But the lawyers will need enough to go on and don’t like having to introduce major points not dealt with in the Heads (as to which see tip number 10).
- Make sure they are not binding If (as will be the case in 99.99% of the time) the parties do not wish to be bound by the Heads, it is advisable to say so. The expression ‘subject to contract’ may be sufficient but consider making it completely clear. Unless the Heads comprise part of an offer to settle a dispute (which is unlikely in this context), it is not necessary to mark them ‘without prejudice’.
- Agree what is satisfactory for planning and environmental A satisfactory planning permission or environmental survey may be pre-requisites and consideration as to what will be deemed to be ‘satisfactory’ should be given at this stage. Much argument around these issues occurs in the negotiation of the legals and early attention to the fundamental issues will save time in the long run.
- Identify the parties and their advisers Make sure the parties and their advisers are accurately recorded, including phone numbers and email addresses. Where any of the parties belongs to a group of companies, mistakes in naming them can occur so be careful. Be careful also where an SPV or JV company is being created to participate in the deal.
- Include a plan of the property Full address, postcode and location plans are all very helpful. Land Registry compliant plans will in due course be required so that the property can be registered. Accuracy is important as the plans will be used by the acquiring party to conduct searches.
- Think about additional costs Details of the consideration and who is paying for what are unlikely to be omitted, but any conditions which need to be satisfied and which are intended to have an impact on the price should be included here. If tax issues can be identified at this stage it will save time later. Ways of mitigating Stamp Duty Land Tax, for example, may have a bearing on the structure of the deal.
- Describe the team and their responsibilities How a new building is to be designed and constructed will be fundamental. The complex matrix of professionals and contractors will need to be considered and the lawyers should have helpful ideas as to how the responsibilities which each member of the team will have to others are recorded and made binding.
- Record any fundamental terms There is little point in reciting boiler plate provisions to be incorporated in the legal documentation but fundamental terms should be recorded. Examples will include rights of way, and covenants to be given. If the deal is subject to other conditions, such as whether Board approval, NDAs or funding are required, they should be recorded
- Make sure you deal with any leases to be granted Completion of the construction works will often trigger the grant of a lease. Although these are usually lengthy documents, many of their provisions are standard or ‘institutional’. Nevertheless, any specific or unusual terms should be recorded. These may, depending on their complexity, form the subject of a separate set of Heads.
- Talk to the lawyers! Really! Input from the lawyers at this stage can be invaluable as there may be significant and unexpected legal obstacles to the deal progressing in the way the parties envisage. A good lawyer will seek (and usually find) solutions rather than just put up a roadblock and so consultation will rarely be premature or wasted.
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Top ten tips for drafting heads of agreement for development deals
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