Letter of Intent: The Precursor to the Lease
In the context of commercial leasing, a Letter of Intent (“LOI”) is the resulting document from a period of negotiations between a Landlord and Tenant. The LOI sets out the basic terms which must be transposed into a binding lease agreement.
These initial agreements are useful to both the Landlord and Tenant by memorializing the terms of the basic deal in writing, which can be binding or non-binding. Theses precursory agreements must be carefully drafted so as not to serve the wrong purpose.
Landlords and Tenants should anticipate a long-term working relationship when negotiating lease terms and provisions.
The lease drafter must clearly distinguish the Minimum and/or Additional rental rates for the Tenant. If the Premises are part of a larger shopping center or retail unit, there will be additional monthly charges for taxes, insurance, and common area maintenance. If the parties agree to an abatement of rent during the initial months of Tenancy, the Rent Commencement Date should be clearly identified.
This provision of a lease must be drafted to permit the Tenant to use the Premises for the current intended business purpose and any prospective future uses the Tenant may deem appropriate. Tenants should also consider any existing use restrictions or exclusivity for their intended use.
During the Term of the lease, the Tenant, not the Landlord, has the right to exclusive possession of the property. The Term often does not commence until improvements that Landlord agreed to make or permitted to be made to the Premises prior to Tenant’s possession are substantially complete. Tenants should also consider the availability of renewal options.