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Commercial Lease Letter of Intent Fundamentals

Commercial lease agreements can be complex, so it is important to include a lease letter of intent when negotiating one.

The letter of intent summarizes and sets forth the terms and conditions under which one would like to lease commercial property.  This is reviewed before the execution of a formal agreement.  

This principle function of the letter of intent (“LOI”) is to show how serious the tenant is about leasing space and outline to the landlord of the terms and conditions to which the tenant is willing to offer.

This post will discuss the framework of the letter of intent.

letter of intent for commercial lease

What is a Commercial Lease Letter of Intent?

A commercial lease letter of intent is a document that outlines the basic terms of a commercial space lease. This document is typically used when negotiating a lease agreement to prevent misunderstandings between the tenant and landlord.

The lease letter of intent should include information such as the term of the lease, lease renewal, lease commencement date, escalations, the amount of rent, and any other important details pertinent to the lease.  

It is important to note that while both parties may agree to certain sections of an LOI such as rent or lease structure, the letter of intent is generally non-binding unless the language within specifies otherwise.

When Should a Letter of Intent Be Written?

A letter of intent should be written when the tenant and landlord have agreed on the basic terms of the lease agreement. This document can prevent misunderstandings between the parties and should summarize the terms and conditions under which one would like to lease commercial property.

Before zeroing in on the terms you would like to put forth in the letter of intent, it is important to research the market and understand what rents, terms, tenant improvement, and escalations are common/customary.  This comparison should be done with similar properties in the respective market you are looking at.

Before any binding legal documents are produced or signed, an LOI should always be prepared. The letter of intent should be regarded as a tool for a smooth negotiation since the terms and conditions are often set forth within the letter of intent.

How long is a lease letter of intent valid?

A lease letter of intent is typically valid 30 days before the expiration date – unless otherwise stated. This gives the parties time to finalize the agreement details and sign the lease agreement.

If either party decides not to proceed with the commercial real estate lease agreement, they can notify the other party in writing, and the letter of intent will be void.

commercial lease letter of intent

How do I prepare for writing a lease letter of intent?

There are a few things that you should keep in mind when preparing to write a lease letter of intent.

First, you should ensure that you have all the relevant information about the property, such as the address, square footage, and any special features or amenities.

You will also need to know your ideal lease terms, which include the lease’s length, the rent amount, tenant improvement (TI), escalations, and any other provisions you may want to add that pertain to the lease.

Finally, you should professionally draft the letter of intent and have it reviewed by an attorney before signing.

How do you write a lease letter of intent for a commercial property?

Your letter of intent for a commercial lease should include an introduction to your business or company. Afterward, describe your need and how this certain property will serve that purpose well. Make sure also to include the following information:

  • The address of the property
  • The square footage of the property
  • The term of the lease agreement
  • Rent 
  • Escalation
    • Is the escalation annual?  If so, what is the escalation based on:
      • CPI
      • $/SF
      • Fixed Rate per annum 
  • Tenant Improvement (TI) allowance
  • Landlords responsibilities
  • Tenants responsibilities

Sample Letter

Dear [Landlord],

We are interested in leasing the commercial property located at [address] for our business. Our company is [description of company], and we believe this property would be an ideal location for our business.

The terms of our lease agreement would be as follows:

– The lease would be for a period of [length of lease] years.

– The monthly rent would be [amount of rent].

If you are interested in leasing the property to us, please get in touch with us at [contact information]. We look forward to hearing from you.

Sincerely,

[Your name]

[Your title]

[Your company]

letter of intent to lease

Can a letter of intent be canceled?

A letter of intent simply outlines the intentions of two or more parties to do business together.  It is a non-binding agreement unless the language in the document specifies that the companies are legally bound to the terms.

Either party can cancel a letter of intent. If the tenant or prospective landlord decides not to proceed with the lease agreement, they can notify the other party in writing, and the letter of intent will be void.

What is the difference between a letter of intent and a lease agreement?

A letter of intent is not a legally binding agreement. It is simply a way to outline the agreement’s terms and ensure that both parties are on the same page. On the other hand, a lease is a legally binding contract that cannot be broken.

A letter of intent is typically used during the negotiation process, while a lease agreement is used once the negotiations are complete and both parties are ready to sign.

Benefits and Downsides of Letters of Intent

A few key benefits to using a letter of intent when negotiating a future lease agreement:

  • Allows both parties to outline the terms of the agreement and ensure they are on the same page. This can help to avoid any misunderstandings or disagreements down the road.
  • It can help to speed up the negotiation process. With a letter of intent in place, both parties can move forward with the negotiations and leasing terms, knowing they are working towards a common goal.
  • Protects both parties if the deal falls through. If either party decides not to proceed with the final lease agreement, they can notify the other party in writing, and the letter of intent will be void.

However, there are also downsides to using a letter of intent:

  • Important to note that a letter of intent is not a nonbinding document. This means either party can back out of the deal at any time without legal repercussions or recourse.
  • If a letter of intent is not drafted correctly, it may be construed as binding upon parties and can lead to unintended consequences or damages.  

If you’re considering using a letter of intent when negotiating your commercial lease agreement, carefully weigh the pros and cons.  Most importantly, consult a legal professional to help you decide whether a letter of intent is right for your particular situation.

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