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 details. Doing so sets the stage for a transparent, professional agreement.
• Premises
  Describe the commercial space being leased, including address, square footage, and any unique features or amenities. Clear premises details reduce misunderstandings later.
• Lease Term and Renewal Options
  Specify the duration of the lease (for example, 3, 5, or 10 years) and include any renewal options. Setting clear timelines builds trust and helps long-term planning.
• Rental Rate and Escalations
  State the base rental rate per square foot or per month, and outline how and when escalations apply. This clarity helps both parties plan for future costs.
• Security Deposit and Other Fees
  Specify the amount of the security deposit required. Detail any additional fees, such as maintenance charges or association dues, to avoid surprises.
• Tenant Improvement Allowance
  If the landlord offers a tenant improvement allowance to help customize the space, outline the amount and approved uses. Specific guidance makes budgeting simpler for both sides.
• Parking and Signage
  Clarify parking arrangements for the tenant, including the number of spaces and any signage rights. This eliminates confusion and sets proper expectations.
• Maintenance and Repair Responsibilities
  Outline the expectations for maintaining and repairing the property. Assigning responsibilities up front prevents disputes and keeps operations running smoothly.
• Timelines and Next Steps
  Provide a timeline for key milestones, such as the due diligence period and lease signing date. Establishing clear next steps helps all parties move forward confidently.

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. Clearly define each party’s responsibilities and timelines.
3. Review legal terms and consult your advisory team before finalizing.

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.