LOI Common Terms in Commercial Real Estate

Common Terms in Commercial LOI's.jpg

When writing a commercial loi for space that you are looking to lease, it is important to cover all of the important business points that you will want to have the landlord include in the final lease document. This way, you can come to a business agreement on terms that you find acceptable before getting caught by surprise by non-favorable language written by the landlord or his attorney.

While it's always best to get the counsel of both an experienced tenant representative and a real estate attorney, here are some common terms that most commercial lease lois define:

Parties to the lease. Most commercial loi documents start by defining who the tenant and landlord will be.
Description of the premises. You should also clearly define on what space you are making an offer. Generally, you will want to include the address, suite number, and size of the space here.
Lease term and amount. Your LOI will describe the start and end dates of the initial lease term, as well as how much you would like to pay in monthly rent. Usually, you will also propose the structure for rent increases -- if any -- here, as well as spelling out the amount and terms of your security deposit.
Options. If you want to have any options with your lease -- such as the right to renew, the right to expand or the right to terminate early, it is also important to include them in your commercial loi so that your landlord understands your needs early on in the process.
Lease type and responsibilities. Along with your rent amount, your commercial loi should also spell out what type of lease you are proposing -- gross, net, etc. From this, you will usually want to go into detail on who is responsible for which expenses, how CAM charges should be calculated, and who will have to pay for both day-to-day and major capital repairs.
Right of use. Your commercial loi should spell out the rights that you want to the building and to its amenities (like signage, parking or the use of common areas). Spelling out what you will be doing in your space is also a wise idea.
Assignment, Subletting and Termination. While it might seem premature to spell out what will happen if you need to terminate your lease as a part of your initial commercial loi, making a proposal for your preferred business terms can be strategic.
Timeframes and procedure. Your commercial loi should define how and when it can be turned into a formal lease.
Miscellaneous language. While many LOIs are written to be non-binding, it is still in your interest to work with both a skilled commercial real estate broker and a real estate attorney to include additional legal terms to protect your interests and follow local customs.