How to Compare Commercial Units and Heads of Terms: A Due Diligence Checklist for Tenants

When comparing commercial units, the headline rent rarely tells the whole story. A well-structured Heads of Terms commercial lease package and a thorough commercial property due diligence checklist can help identify hidden costs, operational restrictions and legal risks before commitments are made. This guide highlights how to compare commercial units before signing and what tenants should consider when negotiating Heads of Terms.

A. Total occupancy cost: what sits beyond the headline rent 

• Business rates: the 2026–2029 rating list is now in force in England and Wales from 1 April 2026. Check the current rateable value, but remember that a change in rateable value does not necessarily mean a like-for-like change in the rates bill, because multipliers and reliefs also matter. 

• Service charges: request the last two years' budgets and reconciliations. Under the RICS 2nd edition, effective from 31 December 2025, budgets should be issued at least one month before the service charge year and year-end accounts within four months, with an apportionment matrix and disclosure of commissions and rebates. 

• Utilities and metering: sub-metering and clear allocation are best practice. Ask for the metering plan and any tenant-only direct supplies. 

B. Building performance: EPC, planning and compliance 

• EPC/MEES: confirm whether there is a valid EPC, the current rating and whether any exemption has been registered. For larger premises, check floor area carefully: the Government's June 2026 interim response proposes that from 2031 private rented non-domestic buildings over 1,000 square metres in England and Wales should reach EPC B, where cost-effective, while buildings below 1,000 square metres are intended to remain subject to EPC E. The EPC C by 2027 milestone is not being taken forward, but secondary legislation is still required. 

• Alterations and planning: for material works or changes of use requiring planning permission, check whether BNG, heritage or conservation constraints apply. BNG rules and exemptions are evolving, with changes announced in July 2026 due to take effect on 6 August 2026, including a new 0.2 hectare exemption and a temporary development exemption. 

• Compliance pack: ask for fire risk information, asbestos documentation where applicable and compliance records for lifts, heating, air conditioning and other plant. 

C. Title, term and flexibility: security of tenure and break rights 

• Security of tenure: check whether the lease is to be inside or outside the Landlord and Tenant Act 1954. The Law Commission published its second consultation paper on 16 June 2026, but the current regime continues to apply unless and until reform is enacted. If the lease is outside the Act, ensure the statutory notice and declaration process is completed correctly before the lease is granted. 

• Term structure: consider a shorter initial term with options to extend or a longer term with a tenant break date, ideally with conditions limited to rent paid and vacant possession. 

• Alienation: allow assignment to group companies and reasonable underletting where appropriate. Avoid automatic AGAs where the incoming covenant meets objective tests. 

D. Repairs, condition and dilapidations 

• Repairs baseline: for older stock, a schedule of condition can cap liability to the property's existing state. 

• Yielding up and reinstatement: make reinstatement proportionate and avoid blanket “put it back” obligations if improvements are beneficial or compliance-driven. 

• Dilapidations: plan early. End of term costs can be significant on FRI leases. 

E. Service charge provisions to agree at Heads of Terms 

When negotiating Heads of Terms, tenants should identify the major commercial and operational issues before legal drafting begins. Matters agreed at Heads of Terms stage are often easier to negotiate before solicitors are instructed. 

• Caps: agree annual caps, for example CPI-linked caps, on volatile soft services where possible. 

• Transparency: require apportionment matrices and timely budgets/accounts, with explanations for delays, in line with the RICS timetable. 

• Exclusions: clarify what is and is not recoverable, particularly improvement costs and landlord investment costs, based on the lease wording. 

F. EPC co-operation, energy data and fit-out clauses 

• EPC improvement co-operation: include a co-operation clause for cost-effective measures with sensible access and disruption controls. 

• Data sharing: agree energy data sharing, including sub-metered data where available, to allocate costs fairly and evidence improvements. For larger buildings, request floor area information, EPC recommendations, any existing MEES exemption evidence and energy data where available, because the proposed 2031 EPC B trajectory is targeted at private rented non-domestic buildings over 1,000 square metres. 

• Fit-out coordination: agree approval timescales and any rent abatement where landlord works materially disrupt trading. 

G. Incentives and pricing: linking concessions to real costs 

• Link incentives to real costs: where rates or service charge exposure is higher, negotiate rent-free or stepped rent, or landlord contributions to fit-out. 

• Break fee discipline: avoid break fees unless linked to identifiable costs actually incurred. 

• HOTs hygiene: record all key points in writing. What is not agreed here is harder to secure later. 

A comprehensive commercial property due diligence checklist for tenants should cover title, planning, repairs, service charge provisions, energy efficiency obligations, occupation costs, security of tenure and operational requirements. Identifying issues before contracts are drafted can significantly reduce delays and unexpected costs. 

Next reads in the series 

Taking a Commercial Lease in 2026: Seven Essentials Before You Sign

Getting to Completion: Negotiating a Commercial Lease in 2026

Comparing Commercial Units and Heads of Terms: frequently asked questions 

What are Heads of Terms and are they legally binding? 

Heads of Terms set out the principal commercial terms agreed between the parties before detailed lease drafting begins. Most Heads of Terms are expressed to be subject to contract and are therefore not legally binding, although certain provisions such as confidentiality or exclusivity agreements may be intended to be binding if expressly stated. The lease itself is the legally binding document that contains the detailed legal rights and obligations governing occupation of the property. 

What should be in Heads of Terms for a commercial lease? 

The key deal points: term, rent, breaks, repairs and condition, service charge framework, alterations, alienation, 1954 Act status, EPC/ESG access and incentives. 

How do I check the rateable value for business rates now? 

Use the government's Find a business rates valuation service to view the rateable value on the current rating list and check the property details used. Model multipliers and reliefs as part of the overall occupancy cost. 

Can EPC upgrade costs be recovered through service charge? 

It depends on the lease wording. The RICS standard is a professional benchmark for transparency, timeliness and reasonableness, but it does not override the contractual service charge provisions in the lease. Any agreed approach to EPC works, data sharing and capital expenditure should be recorded clearly in the Heads of Terms and lease. 

What due diligence should a landlord carry out on a prospective tenant? 

Landlords commonly undertake financial and covenant strength checks, review trading history where relevant, verify corporate information and consider whether guarantors, rent deposits or additional security are required before granting a lease. 

How long does it take to go from Heads of Terms to a signed lease? 

There is no fixed timetable. Some straightforward transactions can complete within a few weeks, whilst more complex transactions involving planning issues, landlord consent requirements, funding arrangements or extensive lease negotiations may take considerably longer. 

What happens if Heads of Terms fall through? 

If Heads of Terms are expressed to be subject to contract, either party can usually withdraw from negotiations before contracts are exchanged. This is why it is important to identify key commercial issues early and ensure expectations are aligned before substantial legal costs are incurred. 

Commercial Property law advice 

Our team of commercial lease solicitors in London advises landlords and occupiers on commercial leases, lease renewals, licence arrangements, business tenancies and property portfolio management across London, and throughout the whole of England and Wales. Whether you are taking your first business lease or expanding an existing portfolio, we can guide you through the process from Heads of Terms through to completion. 

Call 020 8858 6971 or email commercial@grantsaw.co.uk to discuss your circumstances. 

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Disclaimer 

This article is for general information only and is not legal advice. Laws and guidance change and outcomes depend on facts. If you need advice on your situation, please contact us. Grant Saw Solicitors LLP is authorised and regulated by the Solicitors Regulation Authority. 

Last updated: 24 July 2026