You’ve spent hours upon hours researching property listings. You’ve spent untold weekends looking at spaces. Finally, you’ve found the perfect place to rent for your business. Congratulations! At this point, you may be tempted to dive right in. But before you take the first official step toward setting up shop — signing a letter of intent (LOI) with your new landlord – there are a few important things to consider.
A letter of intent is a precursor to a fully negotiated lease, and lays out the parties general expectations about the terms of the lease. It is, in short, an agreement to make an agreement. The law continues to be unclear whether the LOI is binding, but parties that do not take them seriously are making a big mistake. Because there is this legal uncertainty, there is a chance that the LOI will be determined enforceable.
Therefore, be careful what you agree to! Even the strongest positioned or leveraged parties have trouble renegotiating terms of a lease once agreed upon in the LOI.
Hopefully, you have a broker working with you to look out for you, but even when you do, make sure there is not a dual representation of the lessee and the lessor, or landlord. If there is dual representation, keep it in mind as you move through the stages and remember that the broker is representing both parties. This can create a conflict at times, and the lessee should keep in mind that the lessor is likely a repeat client of the broker. For that reason, the broker — consciously or not — may be inclined to represent the lessor’s rights more vigorously than the lessee’s.
Items to consider as you enter into a letter of intent:
These are just some of the issues that may arise in the letter of intent stage of a lease negotiation, and of which the tenant should be aware. If they are addressed and agreed upon at this stage, keep in mind that it will be difficult to renegotiate these terms later. It is important to work with someone who is working for you, and can preserve your rights on these issues. If you have questions about a lease letter of intent or about lease negotiation for your business in general, please contact me.
You may also be interested in our video on the importance of the lease letter of intent in lease negotiations.
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