In Italian retail deals, signing a commercial lease does not guarantee that the store can actually open. Works, permits and commercial authorisations can delay or even block the opening. Three key questions retailers should address as early as the Heads of Terms.
For retailers, some of the most significant risks in a property deal can arise after the lease is signed but before the store opens. When an international retailer negotiates a commercial lease in Italy, attention usually focuses on rent, standard leases term and guarantees.
In our experience, however, some of the most serious difficulties arise after signing, when the retailer has to turn a property into a store that can actually trade.
Handover of the premises does not necessarily mean that the store can be opened. Works, building compliance checks and administrative and commercial authorisations may still be required, with a real impact on timing and costs, and often on the planned opening date.
Italian law also has an important feature: as a general rule, it is the tenant who must check that the property is suitable for the intended business. Stating the commercial use in the lease does not mean that the landlord automatically guarantees that the authorisation needed to open the store can be obtained. Unless the lease says otherwise, that risk largely remains with the tenant.
For this reason, three questions deserve attention as early as the Heads of Terms.
1. Who bears the risk if the store cannot open?
A problem may stem from the condition of the property or from the retailer’s own project. In Italian historic city centres, for example, heritage restrictions and permits can significantly affect the planned works, including changes to the shopfront, signage or internal layout.
The lease should make clear which responsibilities lie with the landlord and which with the tenant, especially if an authorisation is refused, delayed or granted only subject to changes to the project.
2. What happens to the money already paid?
A right to walk away from the deal does not necessarily include a right to recover what has already been paid.
Deposits, upfront payments, works carried out, rent and rent-free periods should therefore be tied to the conditions required for opening. Otherwise, the retailer may incur significant costs without ever being able to use the store. This is particularly relevant where the fit-out has already started.
3. What should be checked before signing?
Technical and legal due diligence should establish not only whether the property is compliant, but also whether the retailer’s project can actually be carried out and which authorisations (also commercial) it requires. In practice, this means looking at the permitted use, the building’s compliance history and any restrictions affecting the works and the activity.
Identifying these issues before entering into binding commitments makes it possible to allocate responsibilities properly and negotiate suitable solutions, rather than incurring costs on works or permit applications for a store that may never open.
The best time to deal with these risks is before the deal is commercially agreed. Not every issue needs to be resolved in the Heads of Terms, but it is important to assess and agree from the outset who will bear the consequences of delays, permitting difficulties or an inability to open. Because in Italian retail deals, securing a property and being able to open a store are not necessarily the same thing.
