Heads of Terms can look like a formality — a short summary document agreed so everyone can get on with the “real” legal work. That impression is exactly what makes them dangerous.
They are normally marked subject to contract and, in themselves, are generally not intended to be the completed lease. That does not make them commercially unimportant. By the time solicitors receive instructions, the landlord and prospective tenant may already have agreed the rent, lease length, break rights, repairing position, rent review mechanism, security package and other fundamentals in principle. A solicitor can still challenge those terms, but doing so may mean reopening a bargain both parties thought had already been settled.
The distinction matters. Heads of Terms are not something a business should fear signing because every word automatically creates an irrevocable lease. They should be taken seriously because this is usually the point at which the business has its greatest opportunity to shape the economic deal before legal drafting, costs and transaction momentum make substantial changes harder.
The RICS Code for leasing business premises, which applies to relevant business lettings in England and Wales, reflects exactly that principle: comprehensive written Heads of Terms should be marked subject to contract and should address the principal commercial matters before the lease is drafted.
The commercial principles discussed here are relevant more widely across the UK, but references to the Landlord and Tenant Act 1954, the RICS leasing code and the 2026 rent-review reforms are specifically to England and Wales. Commercial lease law differs in Scotland and Northern Ireland.
Start with the economics, not just the headline rent
The annual rent is usually the first number negotiated and sometimes the number that receives the most attention. It should not be the last.
A £100,000 headline rent tells the prospective tenant relatively little about the actual occupational cost unless the rest of the arrangement is understood. The Heads of Terms should make clear when rent is payable, whether VAT is expected to be charged, what rent-free period or other incentive has been agreed, whether any incentive carries conditions or potential clawback, and what additional payments sit alongside the rent.
Service charge can materially change the economics of multi-let premises. A prospective tenant needs more than an assurance that there “is a service charge”: what services are provided, what the current budget looks like, whether a cap has been negotiated, whether there is a reserve or sinking fund and how major works are treated can matter considerably. A cap also needs to be understood properly — particularly whether some categories of expenditure sit outside it.
Insurance rent, business rates and utilities may add further substantial costs. The Heads of Terms should also record the agreed position on legal and professional costs rather than allowing responsibility for them to emerge later in the transaction. The point is not that every outgoing needs to be quantified perfectly before terms are agreed; some cannot be. It is that the allocation of those costs should not first become apparent when the draft lease arrives.
Rent review now requires particular care in England and Wales because the legal landscape changed in 2026. Part 5 of the English Devolution and Community Empowerment Act 2026 creates a new statutory framework governing relevant business-tenancy rent reviews, including provisions intended to prevent contractual mechanisms from guaranteeing that rent can only remain the same or increase. The explanatory notes to section 100 and Schedule 37 set out what the new regime is designed to do.
That does not mean the new rules should simply be treated as already operative across every lease being negotiated. Section 100 was not brought into force automatically on Royal Assent and requires commencement under the Act. As at 20 September 2026, the commencement regulations made so far have not brought that provision into force. The Act’s commencement provisions therefore matter as much as the substantive reform when checking the position for a live transaction.
Quite apart from the new legislation, the mechanism itself matters. Open-market review, indexation, predetermined stepped rents and turnover-related arrangements behave differently as markets and trading conditions change. The Heads of Terms should identify what has actually been agreed rather than leaving “rent review” as a heading whose economic meaning is filled in later.
Term, break rights and security of tenure decide how committed the business really is
A proposed ten-year lease with a tenant break after year five is economically different from an unconditional ten-year commitment, even though both can initially be described as a “ten-year lease”.
The starting point should therefore be the business plan rather than whatever lease length happens to be customary for the property. How long does the occupier genuinely expect to need the premises? What happens if headcount changes, trading conditions deteriorate, the business is sold or the operational requirement moves elsewhere? Conversely, how damaging would it be if the business invested heavily in the premises and then lacked sufficient security to remain?
Break rights sit at the centre of that trade-off. The Heads of Terms should establish who can break, when, how much notice is required and what conditions must be satisfied. A break clause that exists in principle but is surrounded by onerous conditions can provide much less flexibility than the headline term suggests.
The RICS leasing code recommends that, unless stricter conditions have expressly been negotiated, a tenant’s break should generally be conditional only on payment of basic rent due before the break date, the tenant giving up occupation and leaving no subtenants or other occupiers. That is a useful negotiating benchmark because disputes about repair, reinstatement or other lease liabilities can normally be dealt with separately rather than being allowed to destroy an otherwise valid exit right.
Security of tenure is a different issue again. In England and Wales, qualifying business tenancies can carry statutory renewal rights under Part II of the Landlord and Tenant Act 1954 unless the statutory protection is validly excluded. Whether a proposed lease is to remain within the Act or be “contracted out” should therefore be explicit at Heads of Terms stage, not discovered when contracting-out notices arrive shortly before completion.
The law in this area is itself under review. The Law Commission’s Business Tenancies: the Right to Renew project is considering reform of the 1954 Act. Its second consultation closed on 16 September 2026 and it is now analysing responses; the consultation does not itself replace the existing statutory regime.
For an occupier, term length, break rights and statutory renewal protection should be considered together. They collectively determine how securely the business can remain and how realistically it can leave.
Repair, condition and promised works can outweigh the rent negotiation
Repairing obligations are one of the areas where a superficially attractive letting can become an expensive one.
The important question is not simply whether the lease is described as “full repairing” or whether somebody mentions a schedule of condition. The tenant needs to understand what parts of the property it will actually be responsible for, what standard those parts must be maintained or returned to, how common or structural repairs are funded and what condition the premises are in before the obligation begins.
An older unit can carry a very different financial exposure from a recently completed building even at the same rent. Depending on the wording, a repairing obligation can require a tenant to remedy existing disrepair rather than merely prevent the property becoming worse during its occupation.
That is why a schedule of condition can be important, but the photographs and survey are not enough by themselves. If the commercial intention is that the tenant should not have to put the premises into a better condition than that evidenced at commencement, the lease needs to express that limitation appropriately and tie it to the schedule.
The same thinking should be applied to service-charge liability for the wider building. A tenant taking one floor of an ageing office block may have no direct repairing covenant over the roof or lifts yet still bear part of their cost through the service charge. Planned major works, replacement of building systems and expenditure required during the proposed term are therefore commercially relevant before the rent is celebrated as a bargain.
Promised landlord works need equal discipline. If the letting depends on the landlord replacing air-conditioning equipment, completing a roof repair, upgrading power capacity, installing a shopfront or carrying out enabling works before occupation, that obligation should be defined. Scope, standard, timing and what happens if the works are late are more useful than a vague statement that the landlord will “undertake works prior to completion”.
Tenant fit-out creates the opposite question. The occupier should know what alterations are permitted, what requires consent and what may have to be removed at lease expiry. A substantial fit-out can create value for the business during occupation and a significant reinstatement liability later.
Make sure the lease lets the business use the property it thinks it is taking
A building can be physically suitable for a business while the lease itself still restricts how it can be operated.
Permitted-use wording deserves more attention than a simple confirmation that the proposed activity is allowed today. A business can evolve during a five- or ten-year occupation. Product ranges change, ancillary activities expand, technology alters operations and companies introduce uses that were not central when the lease was signed.
An unnecessarily narrow permitted-use clause can make those changes dependent on landlord consent later. The appropriate breadth will vary by property and landlord, but the issue should be deliberately negotiated rather than inherited from standard drafting.
Contractual permission under the lease is also separate from planning permission and other regulatory approvals. A landlord agreeing that premises may be used for a particular activity does not, by itself, establish that the activity is lawful under planning or licensing rules.
Rights outside the demise can matter just as much. Access, loading, deliveries, parking, bin storage, cycle facilities, telecommunications, data cabling, plant, signage and rights to use common areas can be operationally essential. If the business requires them, they belong in the transaction discussion rather than being left to assumptions about how the estate or building normally operates.
The same applies where occupation is conditional on planning permission, a licence, board approval, satisfactory surveys or other preconditions. The Heads of Terms should make the dependency visible.
The route out matters before the business goes in
A break clause is only one way an occupier might need to exit.
If the company restructures, relocates or sells the business, assignment or subletting may become important. The Heads of Terms should establish the broad position: whether assignment of the whole will be permitted, whether underletting is possible, whether part of the premises can ever be sublet and whether group sharing or occupation by associated businesses is allowed where relevant.
The detailed conditions can be dealt with in the lease, but discovering after completion that the commercial flexibility expected by the tenant never formed part of the deal is much harder to solve.
The landlord’s security requirements sit on the other side of the same negotiation. A rent deposit, parent-company guarantee or personal guarantee is not merely administrative support for the lease; it changes the financial exposure behind the transaction.
Where a deposit is required, the amount is only part of the question. The circumstances in which it can be reduced or released can matter to a growing business whose covenant strength may improve substantially during the term. With guarantees, the prospective guarantor should understand the nature and duration of the commitment before it appears in legal documentation as though it had always been assumed.
These provisions frequently reflect genuine landlord risk rather than unreasonable negotiating behaviour. The purpose of dealing with them in Heads of Terms is not to eliminate that protection, but to ensure both sides know the security package on which the deal is based.
Heads of Terms should describe the deal that is actually being done
One of the most useful disciplines at this stage is to ask whether the document describes the commercial transaction in enough detail that the lease drafting can follow it without having to invent important terms.
That means more than filling every box.
If the rent is agreed subject to a particular incentive, record it. If the break was fundamental to the tenant’s decision, record the conditions expected to attach to it. If repair is limited by a schedule of condition, make that limitation clear. If the landlord has promised works, define them. If the tenant needs signage, car parking, loading or data rights, identify them. If the letting depends on a planning consent or survey, record the condition.
The objective is commercial clarity, not to draft the lease twice. Heads of Terms should settle the bargain and identify material dependencies without attempting to reproduce every legal mechanism that will ultimately give those terms effect.
Equally, the document should not pretend that every point has been agreed where it has not. An unresolved material issue is more usefully marked for negotiation than hidden behind vague wording that allows landlord and tenant to leave the meeting with different understandings.
There may also be situations where confidentiality, exclusivity or other preliminary commitments are intended to have some binding effect even though the wider transaction remains subject to contract. That is another reason not to treat the document casually: the exact wording and circumstances matter.
Advisers add most value while there is still something meaningful to negotiate
A solicitor receiving agreed Heads of Terms is not powerless to challenge a poor commercial provision. The difficulty is that correcting it may require reopening negotiations after both parties, their agents and their internal decision-makers believed the point had already been settled.
That is why early advice can be disproportionately valuable.
A commercial surveyor can test whether the proposed rent and incentive package reflect the market, examine service-charge and repairing exposure, advise on lease length and break structure and challenge assumptions around the physical premises. A building surveyor may be needed where condition, major works or fit-out exposure is significant. A commercial property solicitor can identify legal consequences in the proposed structure before those consequences become embedded in the documentation.
The sophistication of the advice should reflect the deal. A straightforward small letting does not need to become an institutional due-diligence exercise. But neither should a business accept a six-figure occupational commitment merely because the negotiation began with a two-page document rather than a forty-page lease.
The commercial bargain is being made earlier than it looks
The mistake is not agreeing Heads of Terms quickly. Good Heads of Terms can make a transaction faster because landlord, tenant, agents and solicitors begin from a clearer common understanding.
The mistake is treating speed as a reason not to interrogate the terms that matter.
Rent, lease duration, breaks, review, repair, service charge, permitted use, alterations, assignment, security, renewal rights and promised works are not legal decoration around the commercial deal. Collectively, they are the commercial deal.
By the time the lease arrives, many of those questions may still technically be negotiable. In practice, however, the party trying to change them may have to explain why a position apparently agreed several weeks earlier is suddenly being reopened.
The best time to discover that a break clause is too conditional, a repairing covenant too broad or an exit route too restricted is therefore not during the final round of lease drafting. It is while the Heads of Terms are still being negotiated and changing the deal is exactly what everyone expects to be doing.
This article provides general commercial-property information and does not constitute legal, valuation, surveying, tax or financial advice. Commercial lease law and practice differ across the UK, and the legal references in this article principally concern England and Wales. Heads of Terms, lease documentation and individual property circumstances should be reviewed by appropriately qualified advisers before commitments are made.
