Why Detail is Important in a Letter of Intent for a Commercial Lease

Posted on in Commercial Real Estate

Letters of Intent (LOIs) are typically non-binding and set out the "basic terms" that will be contained in a lease document once the parties agree to the contents of the LOI. However, once the LOI is signed, there is usually an affirmative obligation to move to the next stage, i.e., lease negotiation. My experience has been that when more detail (particularly in regard to items that are critical to you) is included in the LOI, there is less negotiation (and, consequently, less work and expense) involved in achieving a mutually agreeable Lease. I shudder when I see a statement in a LOI to the effect of "to be detailed in Lease". To me, that is a red flag that there is a basic term of the Lease to which no agreement has been reached. Why go to the effort of purporting to agree to basic terms and leave a potentially significant issue looming in an unresolved state? What if, for example, the LOI states: "HVAC unit to be installed by Landlord and maintained by Tenant. To be detailed in Lease." What if each party is adamant that any replacement of that HVAC unit is the responsibility of the other party? If this is a "deal breaker" in the lease negotiations, a lot of time, effort and expense has gone into the lease transaction at that point in time, and all of that effort could well be wasted if the parties fail to come to an agreement. Bottom line: if the issue or item is critically important to you, negotiate it at the LOI stage. A "walk-away" at that point is much less expensive.

Spotts Fain publications are provided as an educational service and are not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel.