Letter of Intent (LOI)

What is a Letter of Intent (LOI)?

A letter of intent (LOI) for a commercial lease is a preliminary document that outlines the key terms of a proposed lease agreement between a landlord and tenant. It serves as a framework for the formal lease agreement and helps ensure both parties are in general agreement before proceeding with negotiations and due diligence. While an LOI is typically non-binding, it's an important step that sets the stage for the leasing process and clarifies expectations.

Why Use a Letter of Intent?

• Facilitates negotiations by providing a clear starting point for discussions
• Establishes serious intent, minimizing the risk of parties backing out after negotiations
• Improves efficiency by allowing landlords to prioritize serious applicants
• Identifies potential deal-breakers early on, saving time and resources
  
  

Key Elements to Include in a Letter of Intent

Parties Involved
Clearly identify the landlord and tenant, including legal names and contact information.

Premises
Describe the commercial space being leased, including address, square footage, and any unique features or amenities.

Lease Term and Renewal Options
Specify the duration of the lease (e.g. 3, 5, or 10 years) and outline any options for the tenant to renew the lease and the terms for doing so.

Rental Rate and Escalations
State the base rental rate per square foot or month. Describe any scheduled rent increases or escalations during the lease term. 

Security Deposit and Other Fees
Specify the amount of the security deposit required. Detail any other upfront fees, such as move-in or administrative fees.

Tenant Improvement Allowance
If the landlord is offering a tenant improvement allowance to help customize the space, specify the amount and any conditions for use.

Parking and Signage
Clarify parking arrangements for the tenant, including the number of spaces and any fees.
Discuss the tenant's signage rights, such as the ability to place a sign on the building exterior.

Maintenance and Repair Responsibilities
Outline the expectations for maintaining and repairing the premises, specifying the responsibilities of the landlord and tenant.

Timelines and Next Steps
Provide a timeline for key milestones, such as the due diligence period, lease execution date, and anticipated move-in date.
Specify any contingencies or conditions that must be met for the lease to proceed.
Outline the next steps for both parties, such as reviewing and negotiating the formal lease document.

Using Technology to Streamline the LOI Process

Commercial property management software can help landlords and tenants collaborate more efficiently on LOIs and leases. Cloud-based platforms allow for secure document sharing, real-time editing, and electronic signatures to expedite the process. Leveraging technology can lead to a smoother leasing experience and get tenants into their new space faster.

Crafting an Effective Letter of Intent

1. Start with a letter of intent template and customize it to fit the specific property and tenant.
2. Use clear, concise language and bullet points to make the key terms easy to understand.
3. Be thorough and address all relevant points to avoid confusion or disputes down the line.
4. Have a real estate attorney review the LOI before signing to ensure it aligns with local laws and protects your interests.

For a comprehensive guide on what to include in a letter of intent, work with experienced commercial real estate brokers who understand the nuances of the process.