Table of Contents
- What is a letter of intent (LOI) for commercial leasing?
- What is the purpose of the Letter Of Intent?
- What does a Letter Of Intent contain?
- How to draft a letter of intent to lease commercial property
- Letter Of Intent sample format
- What are the points that a Letter of Intent can touch upon
- Can Letter of Intent be cancelled?
- FAQs on writing a Letter Of Intent
What is a letter of intent (LOI) for commercial leasing?
A commercial lease refers to a legal agreement between a landlord and a tenant, to rent a commercial property, such as a building or land, for industrial, retail or office use. Commercial property leases are prepared with a longer tenure, as compared to residential leases that usually have a tenure of 11 months. Before getting into a final and definitive contract, the parties usually sign a letter of intent, which is a document that contains a summary of the leasing terms and to inform each party about the details of the agreement.
What is the purpose of the Letter Of Intent?
A Letter Of Intent is a document that forms the basis of the final lease deed between the tenant and the landlord. In other words, the Letter Of Intent outlines the broad contours of the lease agreement that is eventually signed by the landlord and the tenant. If you are taking a space in a building on rent to start your business, the landlord may ask you for a Letter Of Intent from you which will give him an idea of your seriousness to rent the space and also what will be your exact requirements. Moreover, the letter of intent helps in addressing any commercial issues between the parties, while validating their commitment to the contract.
Although you can ask your broker to prepare the Letter Of Intent, it is good to know what goes inside a Letter Of Intent.
What does a Letter Of Intent contain?
- A statement from your side stating your intent to lease space inside the building.
- A brief description of your business including the business model, different business activities and a small history about the start date.
- A brief description about your products and services including the prices and packaging.
- A brief description of the markets where you sell your products or deliver your services.
- The number of employees that you will station in the building and any near-term hiring plan.
- The equipment and machinery that you will keep and use in the rented space.
- Your business hours and any plans to change it in the near future.
- If you have any branches, it will be good to include pictures of those in the Letter Of Intent.
- Your contact details and the best possible place for further meetings.
You can ask the landlord if he has a Letter Of Intent template and you can just fill out the details. You can also ask for a Letter Of Intent given by the other tenants to the landlord and get an idea as to how you should write one.
How to draft a letter of intent to lease commercial property
Letter Of Intent sample format
Dear Mr XYZ,
Our company PQR Ltd will like to submit this Letter Of Intent to communicate out interest in leasing space in your mall.
We are conducting our business with the brand name ‘STU’ which is the number one brand for pizzas. We have been in the business of serving pizzas since 2010. We have a number of varieties of pizzas and wraps. We also sell shakes and other beverages.
As of now, our pizzas sell in the price range of Rs 100-300 and beverages in the price range of Rs 50-200. Our customers are usually youngsters who can have the pizza at the outlet itself or get it packed to eat at home or office.
The outlet that we plan to open in your mall will be about 30 feet by 20 feet which will include the kitchen area and a few tables and chairs for the customers to sit and eat. Our equipment will include an oven and a gas-operated stove. We will also keep a small fridge and a medium-sized freezer.
The outlet will be manned by 7 employees including the ones in the kitchen and the reception. The outlet opening time will be 10 and the closing time will be 11 pm on all days including Sundays.
We hope to be able to complete all the leasing formalities and set up our outlet in your mall at the earliest. In case you find this Letter Of Intent in order, please feel free to contact us on 011-1111111 from Monday to Friday between 10 and 5 pm. We can also set up a meeting in your mall at a desired date and time.
Mr HP Singh,
Director- STU Pizzas
What are the points that a Letter of Intent can touch upon
Some of the points that can be included at the time of writing a Letter of Intent for commercial leasing are:
1. Fixtures and Fitouts
2.Duration/Term of the lease
3. Ways and conditions for subletting
4. Common Area maintenance cost
5. Repair and Minor construction required
6.Salaries/Wages of Cleaning staff
The above points are mere suggestions and need not necessarily be part of every LOI. There may be an existing relationship between the tenant and the landlord and that will also have a bearing on what is to be included and excluded. However, it makes sense to include some or all of them in the LOI, depending on the exact requirements of the renting space and terms and conditions.
Tips for writing an effective Letter of Intent
1. Non-Binding: Both parties, that is, the landlord and the party intending to take a space rent, must write a letter of Intent which is non-binding. Although a Letter of Intent is not enforceable in a court of law as it is only a preliminary document exchanged between the parties, there have been cases where LOI has been taken as the final agreement in certain legal cases. So to avoid this, they must write in the LOI that the conditions mentioned in the LOI are non-binding.
2. Maintaining Flexibility: A LOI must be written in a way that allows flexibility to change some of the requirements and conditions during the phase of negotiation that takes place before a final agreement is signed between the parties. Sometimes, a lot of changes can occur from the time of writing the LOI and the final agreement and there must be a way to change some of the requirements and conditions mentioned in the LOI.
3. Taking Professional Help: Although LOI is not a legally binding document in most cases, it is advisable to take help of a professional like a lawyer or experienced real estate consultant in writing a LOI. This becomes especially important if the space being taken on rent is a large one and involves huge monetary obligation on the parties.
Can Letter of Intent be cancelled?
The purpose of a Letter of Intent, is to facilitate the start of a transaction. It is not legally binding. Thus, either the landlord or the tenant can cancel it at any time. The lease will come into effect, only after the commercial lease agreement is signed.
FAQs on writing a Letter Of Intent
What is a Letter Of Intent?
A Letter Of Intent outlines the intention of a party to enter into an agreement with another. Generally, a Letter Of Intent is not legally enforceable.
What is included in a Letter Of Intent?
A Letter of Intent for a commercial lease may contain information about the landlord and tenant, description of the premises, such as the location of the property, its type, etc., terms of the lease, description of the business activity and other miscellaneous clauses pertaining to expiry of the LOI, exclusivity of the lease, etc.
Why is a Letter Of Intent needed?
A landlord may ask a prospective tenant for a Letter Of Intent, to ascertain the tenant's seriousness in leasing the space and also to find out the tenant's exact requirements.