A Commercial Letter of Intent, also known as an LOI, is the proper way to begin negotiations when it comes to leasing property from a Landlord or purchasing property from an owner.
As a Tenant Representative, an agent utilizes this tool to express his or her client’s interest in entering into an agreement with ownership. At this stage, the Tenant may make requests for modifications within the subject property. Many commercial LOIs vary by sector. For example, a contractor located deep in an industrial park may not have the need for exterior signage, but exterior signage is essential to a storefront in a strip mall on a busy street.
In general, most LOIs cover the same criteria, such as identification and size of the subject property, cost, length or lease, service type, and commencement date. Depending on the client’s needs, agents often tailor these LOIs accordingly. They can also vary in length, depending on the condition of the subject property and the client’s needs. They can range from as little as four or five line items, or as many as fifteen or twenty line items. The best thing about this instrument is that it is non-binding and carries no legal liability whatsoever. It is only a precursor to the legally binding document, the lease.
As the Tenant’s agent, it is important to ensure that all of their desires have been expressed in the LOI. The tenant may utilize this opportunity to request additional concessions, such as rent abatement, improvements, or various other items. Once they are satisfied, it is encouraged that the Tenant executes the bottom to prove to ownership that they are seriously considering entering into an agreement. It often takes time to come to terms on the LOI. The average negotiation period is around two weeks, but can range anywhere from a couple of days to over a month, depending on the complexity of the deal.
Once the Landlord and Tenant have agreed on terms and both have signed off on the LOI, then it is time to move forward with drafting the formal lease or purchase agreement. One more round of reviews to ensure the lease or purchase agreement reflects what was agreed to in the LOI should be all that is left before both parties are ready to sign the lease or purchase agreement and begin the formal landlord/tenant or owner/buyer relationship.
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