Commercial Leases: Letter of Intent

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Oftentimes the first step towards creating a commercial lease agreement is a document called the "letter of intent". Once the tenant and landlord have agreed upon the most basic terms of the commercial lease, have come to some basic mutual understanding, and both are ready to proceed with a commercial tenancy one of two things will happen:

Commonly, the landlord will offer up an intial draft of the lease agreement for the perspective tenant to go over.
Alternatively, either party may write up a letter of intent which basically states that the tenant (or landlord if he or she drafts the document) is serious about committing to a lease and ready to move forward.

This section will cover in detail what the purpose of the letter of intent is, how to prepare a letter of intent and how to respond to one.

The Letter of Intent

Letter of Intent: An Overview
A letter of intent may be written by the landlord or the landlord’s lawyer, or by you or your lawyer. The letter summarizes key issues that you’ve already discussed, such as the issues mentioned above, and may mention other aspects of the lease negotiations, such as a timeline for improvement work and moving in. The letter can be legally binding or nonbinding, depending on how it’s written and how you and the landlord treat it.

Writing a Non-Binding Letter of Intent
It’s usually best to write a letter that simply summarizes key aspects of the hoped-for rental. The issues you may want to cover are listed below; here, we suggest a workable approach. Your letter will probably cover key deal-breaker terms, such as the move-in date and option possibilities, but may be a bit broader, depending on what’s most important to you.

Responding to a Letter of Intent
You may have just received a letter of intent from your proposed landlord. What’s to worry about, other than spending some extra time on preliminaries? Plenty. You need to be very sure that the innocuous-looking letter does not turn into something you’re stuck with—a “binding” letter of intent, which may commit you to the rental terms as described in the letter.