Negotiating the Commercial Lease: Letter of Intent

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April 16, 2018
Author: Lorman Education

In virtually every lease negotiation, the first step is the preparation and negotiations of a Letter of Intent. The level of detail and depth of negotiation will change from one negotiation to the next. In smaller deals, the LOI will merely be an effort to get the basic business terms agreed upon; in others, for example with large retailers, the LOI will need to be detailed and specific, and will need to be approved by said retailer’s committee prior to moving into the lease.

Below is fairly general LOI that I use often in the retail setting. As you will see, this form is a roadmap for the lease, and the negotiations to follow:

Letter of Intent

RE: __________________  Shopping Center


We are pleased to offer you the following terms and conditions upon which we would be willing to lease the space described below for _____________________ at _____________________:

Landlord: _________________________

Tenant: _____________________

Premises: ____________________, Suite , _____________________ Approximately_____________________ Square Feet.

Term: _____________________ years.

Option Term: _________________ (Insert details if applicable)

Possession: Approximately _____________________ (“Possession Date”).

Rent Commencement: Rent, Operating Expenses and all other monies due under the lease shall commence upon the earlier to occur of Tenant opening for business in the Premises, or _____________________days following the Possession Date.

Base Rent: $_____________________ PSF Base Rent, with increases of _____________________

Percentage Rent: _____________________( _____________________%) of annual gross sales in excess of the "Breakpoint." “Breakpoint" shall be an amount determined by dividing the applicable Base Rent by __ percent ( %). (If not using natural breakpoint; put in the applicable information)

Radius: 5 miles.

Tenant Improvements: (Put in details of work and any $$)

Prepaid Rent: Use if part of deal

Security Deposit: An amount equal to the Base Rent for the final month of the Term (This may be adjusted to reflect 1st mo rent with increases as rent increases)

Use: (Be as detailed as can be)

Trade Name of Business:_____________________

Utilities: Tenant shall pay all utilities actually used by Tenant on the Premises.

Signage: To the extent permitted by the City of __________, and subject to Landlord’s consent, Tenant shall be entitled to signage on the exterior of the Premises.

Operating Expenses/Taxes: Tenant will pay its proportionate share of operating costs (including without limitation, insurance and taxes) (collectively, “CAM”) for the Center. Tenant’s proportionate share means the gross leasable area of the Premises divided by the gross leasable area of the Center. For the year 20__, the Center’s operating costs, are anticipated to be $_____ per rentable per square foot per year.

Maintenance and Repairs: Landlord, subject to CAM reimbursement, shall be responsible for maintaining and repairing the common area, including utility lines, meters, and pipes, and the foundation, roof structure, outer walls, and other structural components of the Premises. Tenant’s maintenance and repair obligations shall include all interior and non-structural components, including storefront glass, interior walls, roof membrane, and HVAC and utility systems within the Premises that exclusively serve the Premises.

Janitorial. Tenant shall be responsible for its own janitorial services, including garbage removal. Landlord shall provide the garbage container.

Parking, Access and Common Areas: Tenant, its patrons and employees, shall have the non-exclusive right to park throughout the common area on a 24/7 basis. Landlord has the right to designate time limit parking at the Center and designate employee parking areas.

Assignment/Subletting: Tenant shall have the right to assign or sublet its interest in this Lease or the Premises, subject to Landlord’s written consent, which consent shall not be unreasonably withheld, provided, if the proposed assignee or subtenant will change the use or name of the Premises, such change will be subject to Landlord’s written consent, which may be withheld. Any change in signage, color scheme, trade dress or other appearance items shall require the reasonable approval of Landlord. (Note that there are probably deals in
which we will be more restrictive on Assignment/Subletting)

Personal Guarantee: Each partner of Tenant shall provide a personal guarantee of the Lease.

Brokerage Commission: Landlord will pay a real estate commission per separate agreement.

Lease Format: Landlord’s lease form, subject to mutual approval.

Promo Fund: Tenant shall participate in the Promotional Fund for the Center at $1____ per square foot for 2011, and increasing thereafter at Landlord’s reasonable discretion.

Continuous Operation: Yes

Hours of Operation:_____________________

Relocation: (Standard lease provision – we’ll want to at least consider it at the LOI level)

Project Drawing: Upon Tenant’s execution of this Letter of Intent, Tenant shall diligently commence in developing drawings and plans for the Premises and keep Landlord informed of Tenant’s drawings and any material changes.

The undersigned confirms that the foregoing constitutes the agreement made between the Landlord and Tenant around which the lease will be drafted. However, it is understood and agreed that neither party is under a binding obligation to the other until a mutually satisfactory lease has been executed by both parties.


By: _____________________ By:_____________________

Its:_____________________ Its:_____________________

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