How to Write a Letter of Intent for a Lease

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A letter of intent outlines acceptable business terms.
A letter of intent outlines acceptable business terms. (Image: Digital Vision./Photodisc/Getty Images)

A Letter of Intent is a summary of the terms acceptable to a tenant seeking to lease a space. It is usually prepared by the tenant after he investigates several options in the marketplace, and has made the decision to focus on a single space. The LOI signals to the landlord that the tenant wants to move toward formal agreement. When signed by both parties, the landlord typically asks his attorney to convert the LOI into a comprehensive, binding lease document which effectively replaces the LOI.

Preparing the LOI

Accumulate all of the information that has already passed between the parties. For example, the landlord may have given the prospective tenant a proposal for the space, and supplied floor plans, pictures and a sample lease document. The tenant may have gathered information about the building as well from a variety of sources, including brokers, online data sources and personal inspection. The more effort the tenant puts into creating an LOI that accurately reflects the details of the space and the business terms, the more quickly a mutual agreement will be reached. Also, a more accurate LOI usually translates to less time spent correcting errors and misunderstandings when the final lease is being prepared, which is almost always conducted by hourly paid attorneys.

Gather all accumulated information to ensure accuracy.
Gather all accumulated information to ensure accuracy. (Image: TongRo Images/TongRo Images/Getty Images)

List all of the issues that will be addressed in the LOI. Typical issues that require clarification in the LOI include the premises (the space being leased, which may include internal and external areas like sidewalks or loading docks), base (or contract) rent, escalations in rent over the term of the proposed lease, responsibility for operating expenses (e.g. utilities, real estate taxes, casualty insurance), parking, renovations (who will pay for making the space usable for the tenant's purpose) and allowed uses of the space. Many tenants have specialized concerns like signage, hours of operation, security and restricted access. All of these issues should be identified and sufficiently explained by the tenant in the LOI.

Consider using a template to prepare the final draft of the LOI. Many templates are available for a tenant to use in starting the preparation of the letter, including those a broker may be able to offer. The landlord can also be a resource in this step, too, by offering a boilerplate version of the lease. Knowing the lease will eventually contain all of the agreed points, the tenant can use the table of contents of the lease as starting point for the LOI. Some experienced tenants, like a national chain restaurant, will have a very detailed document they have honed over years of use.

Carefully define the tenant’s intent related to each issue. As an example, under the heading Lease Term, the tenant might indicate he wants to “lease the premises for a continuous period of 60 months, beginning on June 1, 2015, and ending on May 31, 2020.” Using specific language enables all readers of the document to understand and interpret the offer being made by the tenant. Occasionally, the LOI will refer to a detailed exhibit that appears at the end of the letter; a floor plan or a year-by-year rental schedule.

Conclude with a short paragraph that explains the terms expressed reflect intent but are not binding on the parties. The closing paragraph may also express a time limit for agreement requiring the landlord to make some form of response by a certain date. The response might take the form of a signed copy of the letter, or even a formal lease document that contains the expressed terms. Finally, the letter of intent is signed by an authorized representative of the tenant who is identified by name and title. A signature line for the landlord’s representative is also provided.

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