Deal Documents
Letter of intent (LOI)
Also called: LOI, term sheet, letter of understanding
A letter of intent is a short document setting out the principal business terms of a proposed lease — space, term, rent, allowance, and options — before either side spends money on a full lease draft. Most LOIs are expressly non binding as to the deal itself while remaining binding on confidentiality, exclusivity, and brokerage.
An LOI is cheap and a lease is not. Its job is to get the parties aligned on the numbers before lawyers start drafting, and to surface deal breakers while walking away is still free.
What belongs in it
- Premises, rentable square footage, and the load factor used to get there
- Term, commencement mechanics, and any free rent or rent abatement
- Base rent and the escalation schedule, stated as actual numbers per year
- Operating expense structure: triple net, base year, or full service, and any expense cap
- Tenant improvement allowance and who performs the work
- Security deposit and any burndown
- Guaranty, including whether it is a full or good guy guaranty
- Options: renewal, expansion, right of first refusal, termination
- For retail: exclusive use, co-tenancy, permitted use
The binding and non binding split
A well drafted LOI says plainly that no party is bound to lease until a definitive lease is signed by both, and then names the provisions that are binding anyway: confidentiality, the broker's commission arrangement, governing law, and any exclusivity or no shop period. Sloppy LOIs either bind everything or bind nothing, and both create problems.
Why the LOI is worth more effort than it usually gets
Terms conceded in an LOI are extremely difficult to recover in the lease. A landlord that agreed to a 5 percent non cumulative expense cap in the LOI has to be argued out of a cumulative cap in the draft; a tenant that never raised the cap has no basis to introduce it at all. The strongest position at redline is a specific LOI, because every material term already has an agreed reference point.
Watch the drift from LOI to first draft
The first lease draft is prepared by the landlord's counsel and it does not always match the LOI. Comparing the draft against the LOI term by term, before responding to anything else, is the highest value hour in the whole negotiation. Terms that quietly changed are far easier to fix in the first round than in the third.
Catch this clause when it changes
CRE Redline pulls every tracked change out of each redline round, ranks it by how much it moves, and keeps contested clauses visible from round to round. Round 1 of every deal is free.
Analyze your first round freeRelated terms
A tenant improvement allowance is a sum the landlord contributes toward building out a leased space, usually quoted in dollars per rentable square foot and paid on completion against submitted invoices.
Rent abatement is a period during which a tenant pays reduced or no rent, granted either as a concession at signing or as a remedy when the premises become unusable.
An operating expense cap limits how much a tenant's share of operating costs can rise year over year, typically stated as a percentage such as 5 percent.
A good guy guaranty is a limited personal guaranty under which the guarantor is liable for rent only until the tenant vacates the premises, surrenders them in the required condition, and pays everything owed through that date.
A lease abstract is a structured summary of a lease's key business and legal terms — parties, dates, rent schedule, options, and obligations — reduced to a page or two so the deal can be administered without rereading the document.
This page is general information, not legal advice. Review lease language with qualified counsel.