Writing a Non-Binding Letter of Intent
Tips on drafting a letter of intent at the beginning of commercial lease negotiations.
Most of the time, landlords (or their lawyers) write letters of intent (see Letter of Intent). Occasionally, however, tenants may want to write their own, to crystalize preliminary understandings and highlight issues yet to be addressed.
Set the Tone
It’s usually best to write a letter that simply summarizes key aspects of the hoped-for rental. The issues you may want to cover are listed below; here, we suggest a workable approach.
First, be flexible. The most important part of your letter is a clear statement that you don’t intend your letter to be binding. Giving yourself and the landlord room to negotiate is as important as setting some preliminary parameters of your eventual deal.
Second, give yourself room to negotiate new issues. You don’t want a landlord to claim that only those issues raised in your letter of intent should be the subjects of continued negotiations. For example, if you don’t mention an improvements allowance in the letter (that’s the amount of money the landlord will give you to customize the space to your needs, see The Tenant Improvement Allowance (“TIA”), you want to make sure that you can still negotiate for one before you sign a lease. To ensure that the landlord can’t claim that the letter of intent limits the available bargaining points, simply say that future negotiations may cover additional points.
What to Include in a Letter of Intent
Your letter will probably cover key deal-breaker terms, such as the move-in date and option possibilities, but may be a bit broader, depending on what’s most important to you. Any letter of intent that you write should include the following information:
- the name of the entity that will be the landlord
- the name of the entity that will be the tenant
- a promise to deal exclusively with each other until you sign a lease or one of you walks away—in other words, neither will attempt to strike a deal with someone else while you’re negotiating
- a description of the space you’d like to occupy
- the length of the rental term and move-in date
- the rent and what it will include, such as utilities
- a description of your intended use of the property, and any acceptable restrictions
- renovations and how they will be paid for
- who is responsible for maintenance and repair, and
- any other charges you’re obligated to pay.
Of course, you’d want to include any special items that are important to you—signage, for example, or the right to take over adjacent space—which aren’t on the above list.
You and the landlord may decide to finalize your leasing arrangement without the use of attorneys (although we suggest otherwise, as explained in Paying a Lawyer to Review or Negotiate Your Lease. The landlord may use the letter as a guide when preparing the lease, turning points in the letter into lease clauses. Because the letter was not binding (hopefully, you didn’t let a binding letter get past you), it will be possible to renegotiate these issues. And because a letter usually doesn’t cover all the issues in a typical lease, the lease will include new issues, too. Of course, these will also be subject to negotiation, as will any clauses that you might want to add.
How the Landlord’s Lawyer May Use the Letter of Intent
Many landlords use an attorney to help with the leasing process as it progresses from the letter of intent stage to the prepared lease stage. Typically, landlord lawyers pull out their “standard lease” from their file cabinets (or call it up on their computers) and compare it to the letter of intent, modifying the lease as necessary to make it consistent with the understandings in the letter. You and the landlord put further negotiations on hold until a draft lease is ready.
The landlord’s lease will probably contain other terms that weren’t raised in the letter of intent. Many of these terms will be just boiler-plate, lawyerly details—such as a clause specifying that the lease and any amendments represent the entire understanding between the landlord and the tenant. But this isn’t always the case. If your letter has left out important points, the landlord’s lawyer may put them in (and you can be sure that they’re drafted to favor the landlord). The landlord’s lawyer isn’t necessarily just complicating matters—remember, the lawyer has been retained to look out for the client’s interests, and if the landlord’s lawyer spots an issue that needs to be addressed, the lawyer is duty-bound to include it. You, of course, are free to object and negotiate.
This article was excerpted from Negotiate the Best Lease for Your Business by Janet Portman