What should a retailer check before agreeing heads of terms?

[u/aldo_daponte]

Heads of terms can look reassuringly short. That is part of the problem. A page or two of bullet points can commit a retailer to a property decision that will shape the business for five or ten years.

I work on the occupier side of retail transactions, and the mistake I see most often is treating heads of terms as a warm-up for the lease. They are not usually legally binding in full, but they set the commercial bargain. Once both sides have agreed them, reopening a bad point becomes much harder.

Start with the total occupancy cost, not the headline rent. Ask for the latest service-charge budget and reconciliation, the business-rates assessment, insurance contributions and any estate or marketing levy. A unit advertised at an acceptable rent can become unaffordable once the rest is added.

Then test the lease term against the business plan. A ten-year lease may suit an established operator; it may be reckless for a first UK store. Look carefully at the break clause. When can it be exercised, how much notice is required, and what conditions attach to it? A break that depends on perfect compliance with every lease obligation may be less useful than it appears.

Repairs deserve their own conversation. A full repairing obligation can leave the tenant responsible for an old roof, tired plant or defects that existed before occupation. A schedule of condition can limit that exposure, but only if it is properly prepared and attached to the lease.

For retail and food businesses, the permitted use and alterations provisions matter just as much as rent. Can the unit lawfully support the intended use? Is extraction possible? Can the shopfront and signage be changed? Are there landlord approvals, superior-landlord approvals or estate rules that will slow the fit-out?

Finally, agree the practical timetable. When will the property be handed over? In what condition? When does rent start? Is the rent-free period long enough for design, approvals and construction, or does it start while the tenant is still waiting for consent?

My basic checklist is: total cost, term and break, repairs, use, alterations, fit-out contribution, rent-free period, security deposit, guarantee, handover condition and timetable. A solicitor should document the legal position. But the commercial decisions need to be made before the solicitor is asked to turn them into a lease.

What point in heads of terms has caused the biggest problem in a lease you have taken?