July 06, 2019
Letter of intent commercial lease
How To Write A Letter Of Intent For Commercial Lease
Looking for a commercial space requires several steps before eventually signing a commercial lease. Once you have found the perfect office, warehouse, retail or industrial location, a commercial lease letter of intent becomes the official document to start a negotiation for your commercial space.
As a business owner, the letter shows the landlord that you are serious about leasing the space while establishing basic terms for the lease.
To get the process started, here’s how to write a letter of intent for a commercial lease.
Organize the Lease Information
When preparing a commercial letter of intent, or commercial LOI, organization can save plenty of time and resources. Take the time to gather all of the details about the commercial space.
Often times, you will have found the property through a commercial realty website or realtor.
Typically, they provide basic information like asking rent price, square footage and floor plans. In addition, you might have research comparable properties for lease in the area.
Gather as much information as possible so that you can create a detailed LOI. To write your commercial lease letter of intent, you will need all the details provided from the listing.
how to fill in a letter of intent for a commercial lease
Work with A Letter Of Intent Template
To start writing a commercial lease LOI, find a template or sample to work with. There are many commercial lease letter of intent templates and samples available online.
While you don’t need to download them directly, they will give you the format that you need to follow without over-complicating the process. Most letter of intent lease examples contain the major terms including premises, square footage, rental rate, lease type and term.
Additionally, your letter may include any tenant or landlord improvements, security deposit and commencement date. Your details here will serve as the basis for negotiating your commercial lease letter of intent.
Follow a template to include the critical negotiating points for your lease.
Write A Brief LOI Introduction
In addition to the commercial lease terms, consider including a formal introduction in your letter of intent. A brief letter will inform the landlord about your company’s industry, operations and ability to perform as a tenant.
This is an opportunity to express your intent to lease the commercial space. You can include details about why your company would be a great fit for the location or building.
Plus, you can include any details that make you stand out as an ideal commercial tenant. This LOI introduction can create a positive first impression with the landlord, possibly leading to a better commercial lease agreement.
State That The LOI Is Non-Binding
Once you have a letter of intent that includes the basic deal terms and perhaps, a brief introduction of your company, include a clause that states the commercial lease LOI is non-binding.
While most LOIs are considered non-binding, you should explicitly write that neither party has a binding obligation to execute the lease.
The purpose of the letter is to work on drafting a lease and coming to an agreement. You do not want to leave any interpretation as to whether the agreement is binding or non-binding.
This way, your LOI is written in a manner than does bind either party beyond the scope of negotiating the lease.
letter of intent retail lease
Include A Letter Of Intent Expiration
Furthermore, write a commercial lease letter of intent expiration date. This is particularly beneficial for you because it gives the landlord a deadline to respond. A reasonable LOI expiration date ranges between 5-10 days. Of course, if you are looking at multiple commercial spaces or need a quicker response, you can adjust the date accordingly.
This gives you some flexibility when negotiating between multiple properties, avoiding wasted time on landlords who are not interested in reaching a lease agreement.
Once you have found a commercial space to lease, consider writing a letter of intent to the landlord. Start out by collecting all the important information about the space.
Next, follow a commercial lease letter of intent template. If you have the time, consider writing a brief introduction to include with the letter.
Then, include that the letter of intent is non-binding with an expiration date. By following these steps, you can write a commercial letter of intent that sets up the lease negotiation process successfully.
commercial lease letter of intent template
A Letter of Intent Sample
Oh yes we did. We edited a real letter of intent to show you what we would modify.
The Tenant’s LOI Checklist for a Commercial Lease
Ensure both your legal and and the landlord’s legal name are properly spelled.
It should be clearly stated that the letter of intent is non-binding and that it is just a discussion document prior to the lease being formalized.
The premises should be clearly labelled with square footage and it should indicate that the landlord cannot re-measure the premises.
The term and any renewals must be stated. Also state the notice period for the renewal(s) and if it’s at market rental rates or a fixed rental rate.
Name the dates: possession date, fixturing period start and end dates, and the rent commencement date.
Use – say what your business can and cannot do in the space.
Tenant Improvements – who is paying to renovate the space? If it is the landlord then it’s either a landlord turnkey or a tenant improvement allowance. If turnkey – be detailed with the work to be done. If allowance – make sure the dollar amount is clear and any unused portion can be applied to rent (that way you get the full value).
Exclusive Use – be sure that you are the only tenant in your industry that the landlord can sign a lease with.
Rent – what kind of lease is this? It should state the base rent, gross rent, and CAM, all depending on the lease type. Is there percentage rent?
Is there free rent or other rent abatement periods?
Be clear on capital costs – these are major repairs that sometimes landlords charge in one year instead of over the useful life of the improvements.
Security Deposit – hopefully is one month, maybe two months.
Personal Guarantees – most landlords want them for small business owners. If you can’t get out of it, you can often get them downgraded (cap on the exposure such as 6 months rent and not the full amount due, and an expiry on the obligation that is shorter than the lease term).
Signage – is it important to you?
Radius clause – will the landlord restrict you from opening another location nearby?
Relocation – most landlords have the right to relocate tenants – this is important to bring up early in the negotiation.
Overholding – what happens if you stay as a month to month tenant? Most leases have it at a 200% penalty.
Assignment and Subletting – can you assign the lease if you sell your business? Most sublet provisions have painful restrictions.
If you prefer to watch videos, here are my top 6 concepts to think about when you are constructing or reviewing an LOI. There is also a special offer in the video (yay!).
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