What’s so important about Heads of Terms?

In this insight we look at how to ensure that capital allowances are considering from the outset of a transaction by incorporating into the Heads of Terms.

The Heads of Terms (HoT) is a document that sets out the terms of negotiation at the start of a property transaction. A commercial property agent working on behalf of the seller will usually prepare this, which covers various details about the property, including the tax considerations of which capital allowances are a part.

This document will generally inform the final sale and purchase contract, and is designed to prevent confusion by identifying potential deal breakers before considerable time is spent and costs are incurred on the deal.

In our view (irrespective of what the seller believes the case to be) capital allowances should be considered at this stage. Questions that should be asked include:

• Could the seller have claimed additional integral features?
• Did they confirm the tax status of their seller?
• Do they know the full ownership history of the property?
• Can you be sure that they are in possession of all the facts?

In many ways, our role during this stage of a transaction is to piece the evidence together in the context of the current legal framework, and provide the necessary legal and financial advice to protect the buyer’s position.

We take a best practice approach of introducing a section to the HoT to ensure that the seller is aware that the buyer will take reasonable steps to determine the availability of unclaimed capital allowances, as well as advising of the intention to pool and elect all allowances to the buyer as part of the transaction. This will avoid any unnecessary surprises later in the sales process that may cause delays as all parties are aware that the clock is ticking at this stage.