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Taking a step forward: letter of intent in a commercial lease

| Aug 14, 2020 | Commercial Real Estate |

Crafting a commercial lease relevant to a large-scale transaction is hardly a casual and one-step process. The central parties on both sides of the equation must raise and come to terms on multiple and widely varied issues.

To wit: Prospective landlords and tenants negotiating commercial leases in Southern California and elsewhere across the state must routinely address matters such as the following:

  • Description of the property under consideration
  • Rental terms and conditions
  • Parties’ agreement to negotiate in good faith and exclusively with each other
  • Concerns surrounding use, restrictions, maintenance, renovations and repair

Those bulleted items are many, but merely spell a representative list in a much larger universe of potential topics needing to be addressed.

It is often the case after some initial progress and a meeting of the minds has occurred on elemental lease matters that one of the parties – often the landlord, but sometimes a would-be lessee as well – will draft a so-called “letter of intent.” That document serves to summarize tentative understandings and set forth an essential blueprint for further discussion en route to potential contract execution. As one online overview of letters of intent underscores, an LOI reflects negotiating parties’ “serious commitment to making the deal happen.”

Of course, it might not, which is a key reason why parties are quite careful to set forth which provisions in a letter of intent are legally binding and which are not. LOIs are frequently construed as roadmaps to consider and follow in good faith as negotiating parties move further toward consummating a lease transaction.

As the above-cited overview notes, a letter of intent “can play an important psychological role” in commercial lease-linked discussions.

An LOI is a legal document and, as such, should feature close input from a proven commercial law legal team (which might draft the letter or, alternatively, review and respond to it).

In an ideal case, a letter of intent can optimally frame an intended transaction and help guide it toward successful execution.