Letter of Intent (LOI)
A preliminary document outlining the key business terms of a proposed lease before drafting a formal lease agreement.
Definition
A Letter of Intent is a non-binding document that establishes the framework for lease negotiations. It outlines essential terms: rent rate, lease term, square footage, tenant improvement allowance, free rent, escalations, and any special conditions. LOIs allow parties to reach agreement on major points before incurring legal costs for full lease drafting. While typically non-binding, LOIs often include binding provisions for confidentiality, exclusivity periods, or expense reimbursement. In small bay industrial, LOIs are usually 1-3 pages and can be negotiated quickly. Once signed, the LOI guides attorneys in preparing the formal lease, reducing back-and-forth on already-settled business terms.
Example
A plumbing contractor wants to lease a 2,500 SF unit. The broker presents an LOI: $15/SF NNN, 3-year term, 3% annual escalations, one month free rent, $5,000 TI allowance. The landlord counters at $15.50/SF with no TI. They settle at $15.25/SF with $2,500 TI. The signed LOI goes to attorneys for lease preparation.