Include Six Key Terms in Letter of Intent

A letter of intent (LOI), also known as a “term sheet,” sets the stage for a lease. Signed by both the owner and tenant, the LOI indicates that both parties intend to go through with a lease, and includes terms that are fundamentally important to the tenant's operation, such as rent and tenant improvements. And the LOI can affect other parties, such as brokers, who can cause trouble if their services aren’t addressed accurately in the LOI.

That’s why it’s crucial to draft an airtight, error-free document and to make sure that some of the terms in the LOI will survive it, even if the deal falls through in the end. Although the LOI is a preliminary step, and both sides should have the understanding that other terms will be decided later during formal negotiations, that doesn’t mean that this important document shouldn’t be taken seriously. There can be unpleasant ramifications if terms are left out of an LOI or are ambiguous. Focus on the following five negotiable terms:

• Identification of the premises;
• Rental rate;
• Scope of, responsibility for work;
• Security deposit;
• Unique arrangements (such as specialized assignment and subletting provisions);
• Any unusual items or requests.

To learn how to draft an LOI that clarifies key terms so that the tenant doesn't approach you later, claiming that it misunderstood what would be included in the final draft of the lease, see “Key Terms Every Letter of Intent Should Include," available to subscribers here.