Leasing a commercial property in India marks a crucial milestone for businesses, regardless of their scale. Whether you’re a well-established corporation or a budding startup, the journey kicks off with the creation of a Letter of Intent (LOI). Therefore, if you’re considering leasing commercial space for your enterprise, it’s vital to grasp the intricacies of drafting a letter of intent for commercial leasing. This article aims to navigate you through the essential elements and offer advice on crafting a compelling Letter of Intent for leasing commercial property in India.
What is a letter of intent 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.
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Lease Letter of Intent vs rental Letter of Intent .
When it comes to commercial leasing, a rental letter of intent and a lease letter of intent have distinct roles in the negotiation and drafting of a lease agreement.
A rental letter of intent is a preliminary document that a tenant submits to a landlord, outlining the basic terms and conditions that the tenant intends to include in a lease agreement. It serves as a starting point for negotiations between the parties and provides a framework for the eventual drafting and signing of a formal lease contract.
In contrast, a lease letter of intent is a more detailed document prepared by a landlord and submitted to a prospective tenant after initial negotiations have taken place. The lease letter of intent includes specific information about the proposed lease agreement, such as the size and location of the space, the proposed rental rate, the lease term, and any special provisions or conditions.
In summary, both rental letter of intent and lease letter of intent play important roles in the commercial leasing process. The former is typically submitted by the tenant as a starting point for negotiations, while the latter provides more detailed information about the proposed lease agreement and is prepared by the landlord.
Letter of intent for leasing commercial property: Sample
Dear Mr John Doe,
Building Administrator,
ABC Mall, Bangalore,
I am writing to express my firm intent to lease space within your shopping mall, ABC Mall, located in Bangalore. I have conducted a comprehensive assessment of your mall and believe it to be an ideal location to expand my business. I am the proud owner of XYZ, an ethnic wear startup that currently operates branches in both Mumbai and Delhi.
XYZ is an ethnic wear startup that began its journey in 2019. Our primary focus is to curate and offer a stunning collection of ethnic wear, encompassing traditional and contemporary designs, for men, women and children. We blend the rich heritage of Indian attire with modern trends, creating a unique and authentic shopping experience for our customers.
Our product range includes a variety of ethnic clothing, such as sarees, lehengas, kurtas, sherwanis and accessories, all meticulously designed and crafted. We offer a wide range of price points to cater to a diverse customer base. Our ethnic wear has been well-received in Mumbai and Delhi, and we have developed a loyal customer base in these cities. By expanding to Bangalore, we aim to tap into the vibrant market of fashion enthusiasts in the city and the surrounding regions.
We anticipate stationing approximately 10 employees in the space within your mall. We also have near-term plans to expand our team. The rented space will house essential equipment and machinery required for the daily operations of our business, including display racks, mannequins, billing systems and storage facilities. Our current business hours are 10 AM to 10PM every day of the week including Sundays, and we do not foresee any immediate changes. However, we are open to adapting our hours to suit the mall’s operational schedule if necessary.
Attached to this letter, please find pictures of our existing branches in Mumbai and Delhi to provide you with a visual representation of our business.
I am eager to explore the prospect of establishing our presence in ABC Mall, and I am excited about the opportunities this location presents. I kindly request the opportunity for a site visit to discuss the specifics and explore the available spaces. My contact details are provided below for your convenience:
Email: [email protected]
Phone: 111-111-1111
I am looking forward to your positive response and the possibility of further meetings to move forward with this exciting venture.
Thank you for your consideration.
Yours sincerely,
[Your Name]
[Enclosures: Pictures of Mumbai and Delhi branches]
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Letter of Intent for leasing a commercial space: Purpose
A Letter Of Intent to lease 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.
Companies usually prefer to inspect the property that is available for lease. If they are interested, a letter of intent to rent a commercial space will be drafted and sent to the owner so that the property is held till an agreement is prepared. If the owner receives a formal communication that the company is interested in the property, he is bound to give out the property on lease to the company.
Although you can ask your broker to prepare the Letter Of Intent for commercial lease, it is good to know what goes inside a Letter Of Intent to rent a space by looking at a sample.
A letter of intent to lease is useful when negotiating with landlords for office and retail spaces. One should also note that there two main types of Letters Of Intent – one applicable for lease and another for purchase.
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Letter Of Intent to rent a commercial space: What does it 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 sample given by the other tenants to the landlord. You will get an idea as to how you should write a letter of intent to rent a commercial space.
Sample letter of intent for lease space: How to draft it?
What to include in a Letter of Intent?
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
Other points that can be included in the commercial lease letter of intent include property size, sublease rights, parking cost and early occupancy that mainly specifies if the tenant can move-in before the lease commencement date.
The above points are mere suggestions based on sample letter of intent to lease a commercial property 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 commercial lease letter of intent document, depending on the exact requirements of the renting space and terms and conditions.
Letter of Intent: Tips to remember while drafting
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 for renting a space 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 or letter of intent to lease a space 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 letter of intent to lease.
3. Taking Professional Help: Although a letter of intent for a commercial lease 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.
Benefits of a Letter of Intent
A letter of intent can serve as a valuable tool throughout the process of leasing a commercial property. Whether it is drafted early on after viewing the property or during the final stages of negotiation, this document offers several benefits for both parties involved:
- Documentation: The letter of intent provides a simple and efficient way to document the basic terms and conditions of a potential lease agreement. It ensures that the key aspects of the lease are clearly stated and agreed upon by both parties.
- Negotiation tool: By outlining the proposed terms, a letter of intent helps facilitate the negotiation process. It serves as a reference point for discussions, allowing the parties to refine and finalise the lease terms based on their mutual understanding.
- Builds trust: The letter of intent plays a crucial role in establishing a relationship of trust and credibility between the parties. It demonstrates the seriousness and commitment of the lease applicant, fostering a positive atmosphere for further negotiations.
- Helps avoid disputes: By clearly outlining the rights and obligations of each party, the letter of intent helps minimise the potential for misunderstandings and disputes in the future. It provides a framework that can reduce the likelihood of costly legal conflicts down the line.
- Demonstrates commitment: A well-drafted letter of intent signifies the tenant’s seriousness and genuine interest in leasing the property. It shows that the applicant should be taken seriously as a potential tenant, potentially giving them an advantage in the leasing process.
Can Letter of Intent be cancelled?
The purpose of a Letter of Intent to rent a commercial space, 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.
Housing.com POV
Crafting a letter of intent for leasing commercial property in India is a pivotal step in the process of securing a suitable space for your business. This document serves as a preliminary agreement between the landlord and tenant, outlining the basic terms and conditions of the lease. By understanding the key components and following the guidelines provided in this article, you can draft an effective letter of intent that sets the stage for successful negotiations and ultimately leads to the signing of a formal lease agreement. From detailing your business’s requirements to demonstrating your commitment, a well-written letter of intent can help streamline the leasing process and pave the way for a fruitful partnership between both parties involved.
FAQs
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 for renting a space 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 for renting a space, to ascertain the tenant's seriousness in leasing the space and also to find out the tenant's exact requirements.
What is the difference between LOI and lease agreement?
A Letter of Intent (LOI) is a preliminary document used during the early stages of negotiations. It outlines essential lease terms to facilitate the negotiation of the final lease agreement.
Is LOI a legal document?
The legal binding nature of a Letter of Intent (LOI) depends on how it is drafted. Typically, in business-to-business transactions, LOIs include a non-binding provision, indicating that the letter itself does not impose legal obligations.
What are the disadvantages of LOI?
One drawback of an LOI is that, once signed, the seller may lose the ability to actively market their property to other potential buyers. If negotiations fall through, the seller loses both time and potential opportunities with other interested parties.
How long is an LOI valid for?
Typically, a buyer's Letter of Intent (LOI) is open for acceptance for a duration ranging from 72 to 96 hours, and in some cases, it may extend to one or two weeks.
Is LOI mandatory?
In legally binding agreements between two parties, an LOI is often required before finalising the contract. Although an LOI is not inherently binding, it serves as an indicator of the parties' serious commitment to reaching an agreement that will be legally enforceable.
(With inputs from Harini Balasubramanian)
Dhwani is a content management expert with over five years of professional experience. She has authored articles spanning diverse domains, including real estate, finance, business, health, taxation, education and more. Holding a Bachelor’s degree in Journalism and Mass Communication, Dhwani’s interests encompass reading and travelling. She is dedicated to staying updated on the latest real estate advancements in India.
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