Drafting Heads of Agreement for Development Transactions

September 21, 2015

It is important at the outset of development transactions for the parties to define what is involved as best as possible in the initial Heads of Agreement.

There are a number of issues which the parties should have in mind when drafting Heads of Agreement. These are as follows:-

  1. Ensure that all major points are covered

Some Heads of Agreement have too little detail, some too much. The lawyers will need enough to proceed on and do not like having to introduce major points which have not been dealt with in the Heads.

2. Ensure that the Heads of Agreement are not binding

If (as will almost always be the case) the parties do not wish to be bound by the Heads it is prudent to expressly state this. The expression “subject to contract” may be sufficient but it is probably best to make this absolutely clear within the body of the document. Unless the Heads comprise part of an offer to settle a dispute (which is unlikely in the context which we are discussing) it is not necessary to mark them “without prejudice” and certainly such labelling would be in any case meaningless.

3. Set out what is considered satisfactory for planning and environmental issues

A satisfactory planning permission or environmental survey may be a prerequisite to the transaction going forward and some consideration is to be given at this early stage as to what will be deemed by the parties as being satisfactory. It is often the case that argument around these issues occurs in negotiation between lawyers and certainly earlier attention to fundamental issues may well save time in the long run.

4. Clearly identify the parties and their advisers 

Make sure the parties and advisers are accurately recorded including phone numbers and e-mail addresses. Where any of the parties belong to a group of companies clearly identify the appropriate company to ensure no possibility of mistakes. Care should also be taken where an SPV or JV company is being created to participate in the transaction.

5. Include a plan of the property

Full address, postcode and a location plan are all of great assistance to the parties. Obviously Land Registry plans will of course be required for registration purposes but even at this preliminary stage accuracy is important as the plans will be used by the acquiring party to conduct searches.

6. Consider what additional costs there might be

Details of the consideration and of 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. If there are tax issues which can be identified at this stage this will save time later. It may be the case that mitigation of stamp duty land tax, if possible, will have a bearing of the transaction.

7. The team and their responsibilities

The complex matrix of professionals and contractors will need to be considered and it is important to provide details of these in order that the lawyers may allocate responsibilities to each member of the team and how these relate to each other and should best be recorded.

8. Record any fundamental terms

Obviously there is no point in reciting boilerplate provisions to be incorporated in the documentation but truly fundamental terms should be recorded. Examples would be rights of way or covenants to be given. Further if the deal is subject to conditions such as board approval or funding being required these also should be recorded.

9. Make sure you deal with any leases to be granted

Completion of the development works will often trigger the grant of a lease or leases and while these are usually lengthy documents many of the provisions will be standard. However, where there are specific or unusual terms these should be recorded although depending on their complexity it may be that separate sets of heads will be required.

10. Don’t be shy

Input from the solicitors at this stage can be invaluable as there may be significant and unexpected obstacles to the transaction progressing in the way that the parties envisage. It is important to talk to the lawyers even at this early stage and it is rare that such consultation will either be premature or wasted.

Please note; the content of this article is for information purposes only and further advice should be sought from a professional legal advisor before any action is taken.

Please contact Cleaver Fulton Rankin on 028 9024 3141 or alternatively visit www.cfrlaw.co.uk