Sample Letter Of Intent To Lease Commercial Real Estate

Why You Need a Letter of Intent Before you start You Lease Commercial Space

What You Need to Know Before You Start Writing

Step-by-Step Instructions to Drafting Your LOI

1. Start with the Basics. This is the "who, what, and where." You need to clearly identify the landlord (or the landlord's broker) and your business entity. Include the specific address of the property, including the suite number if applicable. Don't be vague. If you’re looking at a unit on the second floor, say "Suite 220." This avoids confusion down the line.
2. State the Proposed Rent. This is your starting bid. Be realistic. Research comparable spaces in the area so you know what the market rate is. Don't lowball so much that the landlord laughs you out of the room. But also don't just accept the asking price. In your LOI, you'll typically state the annual rent, the monthly rent, and the price per square foot. For example, you might write "Annual rent of $48,000 ($4,000 per month), based on 1,200 square feet at $40.00 per square foot."
3. Define the Lease Term. How long do you want to lease the space? Five years? Ten years? Commercial landlords love long-term tenants because it means stability. But you should negotiate for what you need. Also, include any options to renew. A common term is a "5+5" which means a five-year initial term with an option to renew for another five years. This gives you security while giving the landlord a clear timeline.
4. Address Operating Expenses and CAM Charges. This is where a lot of newbies get tripped up. Rent is just the base. In a commercial lease, you’re often also responsible for your share of the property’s operating costs, which can include maintenance, insurance, and real estate taxes. These are called Common Area Maintenance (CAM) charges. In your LOI, you need to specify whether the rent is "gross" (all-inclusive) or "net" (you pay rent plus your share of expenses). A "full-service gross" lease is often preferred by tenants because it’s predictable. A "triple net" lease (NNN) means you're responsible for all costs, which can be risky.
5. Specify Tenant Improvements (TI). This is the money the landlord gives you to build out the space to your specifications. It's a huge point of negotiation. If you're moving into a shell space, you can negotiate a significant allowance (e.g., $50 per square foot). If the space is already in good shape, you might ask for "as-is" but request a few months of free rent instead. Be clear about what work you'll do and the budget.
6. Include a Condition. This is your escape hatch. You should always make your LOI contingent on you signing a formal lease agreement that you and your attorney approve. You might also want to include a contingency for getting a zoning approval or securing financing. That protects you from being locked into a deal you can't complete.

Common Mistakes to Avoid

• Treating the LOI as a Legal Document. It’s not. It’s a starting point. Don't get bogged down in precise legal language. Leave that for the actual lease. If you try to make it too perfect, you'll waste time. It just needs to capture the business deal.
• Ignoring the Exclusivity Clause. If you're a coffee shop, you don't want another coffee shop opening up right next door. You should include a clause that says you have the exclusive right to operate your type of business in that shopping center. If the landlord already has a similar tenant, you need to know that now, not later.
• Forgetting About Renewal Terms. This is a huge one. If you forget to negotiate the renewal rate, the landlord can jack up the rent to whatever they want when your initial term ends. Make sure you have to specify how the rent will be determined upon renewal. Is it a fixed increase? Is it based on market rate? Get it in writing.
• Not Being Specific Enough. Don't say "I want a large space." That's useless. Say "I need 2,500 square feet." Specificity shows you've done your homework and helps the landlord take you seriously.

Pro Tips from the Inside

• Use a Broker. I know you might be trying to save money, but a good commercial real estate broker is worth their weight in gold. They know the market, they know the landlords, and they know how to structure a deal. They can also protect you from making costly mistakes. Their fee is usually paid by the landlord, so it's a no-brainer.
• Be Flexible on Timing. Landlords hate vacant space. If a landlord has an empty unit, they're losing money every single day. If you can offer a quick move-in date, that’s a huge selling point. Sometimes you can get a better deal by agreeing to move in sooner.
• Get Everything in Writing. I cannot stress this enough. Verbal agreements are worthless in real property Email is great. Have your broker send over a summary of your call to the landlord's broker. This creates a paper trail and prevents "he said, she said" situations.
• Don't Be Afraid to Walk Away. Here’s the thing. There will always be another space. If the landlord isn't willing to negotiate on the key terms, it's better to walk away than to sign a bad deal. You'll be stuck with that lease for years. It's better to be patient and identify the right fit.
• Keep It Professional. This is a business document. Use a professional tone. While you should be friendly, avoid getting overly casual. You want to present yourself as a credible, reliable tenant.

FAQ: Your Burning Questions Answered

Is a letter of intent legally binding?

Generally, no. That main purpose of an LOI is to outline the business terms of the deal before the formal lease is drafted. However, there are exceptions. Clauses related to confidentiality, exclusivity, and the installment of legal fees are often binding. It's key to read the entire document carefully and have your attorney review it to ensure you know exactly what you're agreeing to before you sign.

How long should my LOI be?

Keep it short and sweet. A good LOI is typically only one to three pages long. It doesn't need to be a novel. It just needs to hit the major economic points of the deal: the parties, the space, the rent, the term, and the key concessions. If it's longer than that, you're probably overcomplicating it. The detailed legal terms belong in the actual lease agreement.

What happens after I submit my LOI?

Once you submit your LOI, the landlord will either accept it, reject it, or (more likely) come back with a counter-proposal. This begins the negotiation phase. You'll go back and forth on terms until you reach a mutual agreement. Once that happens, the landlord's attorney will draft the formal lease based on the terms in your LOI. Then, the real work of lease review and negotiation begins.