Commercial Lease Letter of Intent (Multi-Tenant) - Arizona

LETTER OF INTENT FOR COMMERCIAL LEASE — MULTI-TENANT PROPERTY

STATE OF ARIZONA

CONFIDENTIAL — FOR NEGOTIATION PURPOSES ONLY

Date: [__/__/____]

LOI Reference No.: [________________________________]

IMPORTANT NOTICE REGARDING NON-BINDING EFFECT: This Letter of Intent ("LOI") sets forth the principal business terms upon which the parties intend to negotiate a definitive Lease Agreement. Except for those provisions expressly identified as binding in Section 18 below, this LOI is not intended to create, and shall not be construed as creating, any legally binding or enforceable obligation on either party. Under Arizona law, agreements for leasing real property for a period longer than one (1) year are invalid unless the agreement, or some memorandum thereof, is made in writing and signed by the party to be charged (A.R.S. § 44-101(6)).

1. PARTIES

Landlord:

Tenant:

2. PREMISES AND BUILDING

Building Description:

• Building Name: [________________________________]
• Building Address: [________________________________], [________________________________], Arizona [____]
• County: ☐ Maricopa ☐ Pima ☐ Pinal ☐ Coconino ☐ Gila ☐ Other: [________________________________]
• Total Building Rentable Area: [________________________________] square feet
• Number of Stories: [____]
• Year Built / Last Renovated: [____] / [____]
• Building Class: ☐ A ☐ B ☐ C
• Property Type: ☐ Office ☐ Retail ☐ Mixed-Use ☐ Industrial ☐ Medical ☐ Other: [____]

Tenant's Premises:

• Suite / Unit Number(s): [________________________________]
• Rentable Square Feet (RSF): [________________________________]
• Usable Square Feet (USF): [________________________________]
• Load Factor / Loss Factor: [____]%
• Floor(s): [________________________________]
• Premises Location: [________________________________]

Measurement Standard:

• ☐ BOMA 2017 Office Standard (ANSI/BOMA Z65.1-2017)
• ☐ BOMA 2010 Retail Standard
• ☐ BOMA Industrial Standard
• ☐ Other: [________________________________]

Arizona Note: Arizona does not have a dedicated commercial landlord-tenant statute. Commercial leases are governed primarily by general contract law principles and the terms of the lease agreement itself. Unlike residential leases (governed by the Arizona Residential Landlord and Tenant Act, A.R.S. § 33-1301 et seq.), commercial lease parties have broad freedom to contract. This makes the definitive Lease particularly important — virtually all rights and obligations must be expressly addressed in the document.

3. LEASE TERM AND COMMENCEMENT

• Initial Term: [____] years [____] months
• Anticipated Commencement Date: [__/__/____]
• Rent Commencement Date: [__/__/____] or upon:
• ☐ Delivery of Premises
• ☐ Substantial Completion of Landlord's Work
• ☐ Certificate of Occupancy
• ☐ Other: [________________________________]
• Lease Expiration Date: [__/__/____] (subject to adjustment)
• Early Access / Fixturing Period: [____] days prior to Rent Commencement Date, rent-free, for Tenant's fixturing and move-in

4. DELIVERY OF PREMISES

• Delivery Condition:
• ☐ Warm Shell (HVAC to Premises, electrical stub, plumbing stub, fire-life safety to code)
• ☐ Cold Shell (structural shell only)
• ☐ As-Is
• ☐ Built-Out per approved plans

• ☐ Other: [________________________________]

• Target Delivery Date: [__/__/____]

• Outside Delivery Date: [__/__/____]

• Late Delivery Remedies:

• ☐ One (1) day of free Base Rent per day of delay beyond Outside Delivery Date
• ☐ [____] days of free Base Rent per day of delay
• ☐ Termination right if delay exceeds [____] days, upon [____] days' notice

• ☐ Other: [________________________________]

• Force Majeure: Delays caused by acts of God, governmental restrictions, labor disputes, extreme weather events (including monsoon-related damage or delays), material shortages, or other events beyond Landlord's reasonable control shall extend the Outside Delivery Date day-for-day, not to exceed [____] additional days.

Arizona Climate Note: Arizona's extreme heat (summer temperatures regularly exceed 110°F in the Phoenix metro area) and monsoon season (June 15 – September 30) can affect construction timelines and building system performance. The definitive Lease should address heat-related construction scheduling and monsoon damage provisions.

5. RENT

5.1 Base Rent

• Rent Escalation Method: ☐ Fixed percentage ([____]%) ☐ Fixed dollar amount ($[____]/RSF) ☐ CPI (All Urban Consumers, Phoenix-Mesa-Scottsdale MSA) ☐ Other: [________________________________]

5.2 Arizona Transaction Privilege Tax (TPT)

CRITICAL ARIZONA-SPECIFIC PROVISION: Under A.R.S. § 42-5069, the leasing of real property for commercial purposes is subject to Arizona Transaction Privilege Tax (TPT). This is a tax on the privilege of doing business in Arizona, imposed on the lessor (Landlord), but customarily passed through to the Tenant.

• TPT Rate: The current combined state, county, and city TPT rate for commercial leases at the Property location is approximately [____]% (verify current rate with the Arizona Department of Revenue)
• TPT Applicability: TPT applies to all rent and other charges paid by Tenant under the Lease
• TPT Counties: Five Arizona counties impose county TPT on commercial leases: Coconino, Gila, Maricopa, Pima, and Pinal. City TPT rates vary by municipality.
• TPT Payment: ☐ Tenant pays TPT as Additional Rent ☐ TPT included in Base Rent ☐ Other: [________________________________]
• TPT on TI Allowance: Confirm whether Landlord's contribution toward Tenant's improvements triggers retail TPT on the construction activity

5.3 Free Rent / Abatement

• Free Rent Period: [____] months of Base Rent abatement following Rent Commencement Date
• ☐ Base Rent only ☐ Base Rent and Additional Rent
• Recapture of Abated Rent upon Default: ☐ Yes ☐ No

5.4 Security Deposit

• Amount: $[________________________________] (equivalent to [____] months' Base Rent)
• Form: ☐ Cash ☐ Letter of Credit ☐ Other: [________________________________]
• Reduction Schedule: ☐ Reduced by [____]% after Year [____] if no uncured defaults ☐ No reduction

6. ADDITIONAL RENT — CAM, TAXES, AND INSURANCE (MULTI-TENANT ALLOCATION)

6.1 Lease Structure

• ☐ Triple Net (NNN) — Tenant pays pro rata share of Operating Expenses, Real Estate Taxes, and Insurance
• ☐ Modified Gross — Landlord includes [________________________________] in Base Rent; Tenant pays increases over Base Year
• ☐ Full Service Gross — All Operating Expenses included; Tenant pays increases over Base Year [____]
• ☐ Other: [________________________________]

6.2 Tenant's Pro Rata Share

• Tenant's RSF: [________________________________]
• Building RSF: [________________________________]
• Tenant's Pro Rata Share: [____]%
• Gross-Up Provision: Operating Expenses grossed up to reflect [____]% occupancy if actual occupancy is lower

6.3 Common Area Maintenance (CAM)

• Estimated Year 1 CAM: $[____]/RSF
• CAM includes: property management fee (capped at [____]% of gross revenues), common area utilities, janitorial, landscaping (including desert landscaping and irrigation), parking lot maintenance, security, trash removal, elevator maintenance, common area repairs, pest control
• CAM Exclusions: Capital expenditures (except those amortized over useful life that reduce Operating Expenses), leasing commissions, Landlord's income taxes, depreciation, debt service, ground lease rent, costs of correcting latent defects, costs reimbursed by insurance or other tenants, costs of tenant-specific improvements
• Controllable CAM Cap: ☐ [____]% per annum increase ☐ No cap

Arizona CAM Note: Given Arizona's climate, CAM charges in Arizona multi-tenant buildings often include significant cooling costs during summer months. Confirm how HVAC costs for common areas are allocated, whether after-hours HVAC charges apply, and whether Landlord has installed energy-efficient systems to manage cooling costs. Water costs for landscaping (even desert-adapted landscaping) should also be clearly addressed given Arizona's water scarcity issues.

6.4 Real Estate Taxes

• Estimated Year 1 Taxes: $[____]/RSF
• Base Year for Tax Escalation: Calendar Year [____]

Arizona Property Tax Note: Arizona uses a two-tier property tax system: primary taxes (for school districts, counties, cities, community colleges) and secondary taxes (for voter-approved bonds and overrides). The "full cash value" (FCV) and "limited property value" (LPV) are both used for assessment purposes. Commercial property is assessed at a ratio of the FCV. Verify the current assessment ratio, tax rate, and whether any pending construction or assessment appeals may affect future tax liability. Tax bills are issued in September and payable in two installments (October 1 and March 1).

• Tax Protest Rights: ☐ Landlord shall protest assessment increases exceeding [____]% ☐ Tenant may participate in tax appeals ☐ Costs and benefits shared pro rata

6.5 Insurance

• Estimated Year 1 Insurance: $[____]/RSF
• Landlord maintains: property/casualty (replacement cost), CGL, umbrella, and lender-required coverage
• Tenant maintains: CGL ($[________________________________] per occurrence / $[________________________________] aggregate), property insurance for personal property, business interruption, workers' compensation

6.6 Annual Reconciliation and Audit Rights

• Landlord delivers reconciliation within [____] days after calendar year-end
• Tenant audit rights for [____] months following reconciliation delivery
• If audit reveals overcharge exceeding [____]%, Landlord reimburses audit costs

7. TENANT IMPROVEMENTS

7.1 Tenant Improvement Allowance

• TI Allowance: $[____]/RSF (total: $[________________________________])
• Application: ☐ Hard costs only ☐ Hard and soft costs ☐ FF&E included
• Unused TI Allowance: ☐ Forfeited ☐ Applied as rent credit ☐ Cash to Tenant
• Disbursement: ☐ Progress payments with lien waivers ☐ Lump sum upon substantial completion

7.2 Landlord's Work

• Scope: [________________________________]
• Plans: ☐ Mutually agreed ☐ Per Exhibit [____] ☐ Per Building Standard
• Completion Deadline: [__/__/____]

7.3 Tenant's Work

• Plans subject to Landlord's prior written approval (not unreasonably withheld)
• Contractors: ☐ Landlord-designated ☐ Any licensed Arizona contractor (ROC-licensed) approved by Landlord
• All contractors must carry insurance and provide lien waivers

Arizona Contractor Note: Arizona requires all contractors performing work on commercial buildings to hold a valid license from the Arizona Registrar of Contractors (ROC) under A.R.S. § 32-1101 et seq. Contracts with unlicensed contractors may be unenforceable. Verify ROC license status before approving any contractor.

7.4 ADA and Code Compliance

• Landlord represents Building common areas comply with ADA and applicable building codes as of Delivery
• Tenant responsible for ADA compliance within Premises
• Code upgrades triggered by Tenant's improvements: ☐ Tenant ☐ Landlord ☐ Shared
• Arizona-specific: Compliance with Arizona accessibility standards and local municipal building codes (e.g., City of Phoenix Building Code, City of Scottsdale Development Code)

8. USE, EXCLUSIVES, AND CO-TENANCY

8.1 Permitted Use

• Tenant's Permitted Use: [________________________________]
• Restrictions under zoning, CC&Rs, or existing tenant exclusives: [________________________________]

Arizona Zoning Note: Arizona municipalities exercise zoning authority independently. Major metro area zoning codes (Phoenix, Scottsdale, Tempe, Mesa, Tucson, Chandler, Gilbert) each have distinct requirements. Confirm the Property's zoning classification permits Tenant's intended use. Special use permits may be required. For properties in planned area developments (PADs), check the specific PAD stipulations.

8.2 Exclusive Use Provisions

• ☐ Tenant shall have exclusive right to operate as [________________________________] within the Property
• ☐ Exclusive applies to: ☐ Entire Property ☐ Building only ☐ Shopping center/complex
• ☐ Exceptions: [________________________________]
• ☐ Remedies for violation: ☐ Rent reduction to [____]% ☐ Termination right ☐ Injunctive relief ☐ Other: [________________________________]
• ☐ No Exclusive Use provision

8.3 Co-Tenancy Requirements (Retail / Multi-Tenant)

• Opening Co-Tenancy:
• ☐ Anchor tenant(s) [________________________________] open and operating
• ☐ [____]% of Property RSF occupied and open

• ☐ No opening co-tenancy

• Ongoing Co-Tenancy:

• ☐ Reduced rent of $[____]/RSF or [____]% of Base Rent if conditions fail
• ☐ Termination right if failure continues for [____] consecutive months upon [____] days' notice
• ☐ No ongoing co-tenancy remedies

8.4 Tenant Mix and Compatibility

• Prohibited or restricted uses in the Property: [________________________________]
• Existing tenants and uses acknowledged: [________________________________]

9. RENEWAL OPTIONS

• Number of Renewal Options: [____]
• Duration of Each: [____] years
• Renewal Rent:
• ☐ Fair Market Value per Section 17
• ☐ Fixed escalation: [____]% above last year's Base Rent
• ☐ Greater of FMV or [____]% increase
• ☐ CPI-adjusted (Phoenix-Mesa-Scottsdale MSA)
• ☐ Other: [________________________________]
• Notice Required: [____] months prior to expiration
• Conditions: No uncured Event of Default

10. EXPANSION AND RIGHTS OF FIRST OFFER / REFUSAL

• ROFO: ☐ Yes — for [________________________________] (Expansion Space) ☐ No
• ROFR: ☐ Yes — [____] business days to match third-party offer ☐ No
• Expansion Option: ☐ Yes — into [________________________________] upon [____] months' notice ☐ No
• Contraction Option: ☐ Yes — reduce by [________________________________] RSF after Year [____] with contraction fee ☐ No

11. SIGNAGE

• ☐ Suite entry signage per Building standard
• ☐ Building directory listing
• ☐ Building exterior / monument signage: ☐ Exclusive ☐ Shared ☐ Not available
• ☐ Pylon signage
• All signage subject to Landlord approval, Building sign criteria, and applicable municipal sign codes
• Landlord provides Building-standard suite signage; non-standard at Tenant's cost

Arizona Note: Arizona municipalities have distinct sign codes. The City of Phoenix sign code (Phoenix Zoning Ordinance, Chapter 7) regulates size, illumination, height, and type. Scottsdale has notably restrictive sign regulations. Verify local requirements before committing to signage specifications. Some master-planned communities and HOAs impose additional sign restrictions through CC&Rs.

12. PARKING AND COMMON AREAS

12.1 Parking

• Parking Ratio: [____] spaces per 1,000 RSF
• Total Spaces: [____]
• Reserved: [____] at $[____]/space/month
• Unreserved: [____] at $[____]/space/month (or ☐ included)
• ☐ Covered parking available: [____] spaces at $[____]/space/month
• Location: [________________________________]

Arizona Parking Note: Covered parking is highly desirable in the Arizona market due to extreme summer heat. Surface parking temperatures can exceed 160°F during summer months. Consider whether covered or shaded parking is available and how it affects employee and customer experience.

12.2 Common Areas

• Non-exclusive access to all Building common areas
• Landlord reserves right to modify common areas provided no material diminishment to Tenant
• Loading dock / freight elevator: ☐ Shared ☐ Dedicated ☐ N/A

13. ASSIGNMENT AND SUBLETTING

• Landlord consent required (not to be unreasonably withheld, conditioned, or delayed)
• Permitted Transfers: To affiliates, or by merger/consolidation/acquisition, provided transferee net worth not less than $[________________________________]
• Recapture Right: ☐ Yes ☐ No
• Profit Sharing: ☐ [____]% to Landlord ☐ None

14. INSURANCE AND INDEMNIFICATION

• Standard lease insurance; mutual indemnification
• Waiver of Subrogation: Mutual waiver for insured losses
• Tenant to name Landlord as additional insured

Arizona Insurance Note: Arizona's climate creates unique insurance considerations. Verify that property insurance covers monsoon damage (dust storms, microbursts, flooding), extreme heat damage, and wildfire exposure. Some Arizona locations may require flood insurance if within a FEMA-designated flood zone. Review the Property's FloodSmart status.

15. SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT (SNDA)

• Landlord delivers SNDA from lender(s) within [____] days of Lease execution
• SNDA provides non-disturbance of Tenant's possession if no Tenant default

16. BROKERS

• Landlord's Broker: [________________________________] (Arizona ADRE License No. [________________________________])
• Tenant's Broker: [________________________________] (Arizona ADRE License No. [________________________________])
• Commission: Per separate agreement

Arizona Broker Note: Under A.R.S. § 32-2101 et seq., all persons acting as real estate brokers in Arizona must hold a license from the Arizona Department of Real Estate (ADRE). Per A.R.S. § 44-101(7), agreements employing a broker to sell real property must be in writing. However, Arizona case law distinguishes broker commissions on leases from sales — oral commission agreements for leases may be enforceable. Nonetheless, written commission agreements are strongly recommended. Under A.R.S. § 32-2156, brokers have disclosure obligations regarding known material facts affecting the property.

• Each party indemnifies the other for claims from any broker other than those named above.

17. FAIR MARKET VALUE DETERMINATION (IF APPLICABLE)

1. Negotiation: [____] days following exercise of the applicable option.
2. Broker Determination: Each party appoints a licensed Arizona commercial real estate broker with [____]+ years experience in the [________________________________] market. Independent FMV determinations within [____] days. If within [____]%, FMV is the average. Otherwise, baseball arbitration by a mutually selected third broker.
3. FMV Definition: Rental rate for comparable space in comparable multi-tenant buildings in the [________________________________], Arizona submarket, considering concessions, but excluding Tenant-funded improvements and goodwill.

18. BINDING PROVISIONS

The following provisions are legally binding and enforceable upon execution:

18.1 Exclusivity

Landlord shall not market, show, negotiate, or enter into any lease or LOI for the Premises during the Exclusivity Period (from execution through [__/__/____]).

18.2 Confidentiality

All terms and negotiations confidential, except to attorneys, accountants, lenders, brokers, and professional advisors.

18.3 Broker Indemnification

Section 16 indemnification obligations are binding.

18.4 Governing Law and Venue

Governed by Arizona law without regard to conflicts of law. Exclusive jurisdiction in state or federal courts in [________________________________] County, Arizona.

18.5 Expenses

Each party bears its own costs regardless of whether the Lease is executed.

19. ENVIRONMENTAL AND PROPERTY CONDITION

• Landlord represents, to actual knowledge:
• ☐ No Hazardous Materials in violation of Environmental Laws
• ☐ Property not on any contaminated sites registry

• ☐ No pending or threatened environmental actions

• Landlord to provide Phase I/II reports within [____] business days

• Tenant may conduct inspections during [____]-day due diligence period

Arizona Environmental Note: Arizona has significant environmental considerations for commercial properties, including potential legacy contamination from historical mining, agricultural, and industrial activities. The Arizona Department of Environmental Quality (ADEQ) maintains the Water Quality Assurance Revolving Fund (WQARF) program for state-level Superfund sites. Verify whether the Property is on or near a WQARF site. Additional concerns include: perchlorate contamination in groundwater (prevalent in certain Phoenix-area zones), valley fever (Coccidioides) soil disturbance during construction, and compliance with Maricopa County Air Quality Department dust control regulations (Rule 310) during any construction activities.

20. TIMELINE AND NEXT STEPS

21. ADDITIONAL TERMS AND CONDITIONS

• Holdover: [____]% of last month's Base Rent, plus Additional Rent and applicable TPT.
• Default Cure Periods: [____] days monetary; [____] days non-monetary (with extension for diligent cure).
• Casualty and Condemnation: Standard provisions; note that monsoon and dust storm damage should be addressed.
• Estoppel Certificates: Within [____] business days of request.
• Quiet Enjoyment: Landlord covenants Tenant's quiet enjoyment throughout the Term.
• HVAC: Specify hours of building-standard HVAC; after-hours rate of $[____]/hour; confirm system capacity for Arizona summer conditions.

22. PRACTICE TIPS AND ARIZONA-SPECIFIC NOTES

For Counsel:

1. No Commercial Landlord-Tenant Statute: Arizona has no dedicated commercial landlord-tenant statute. The Arizona Residential Landlord and Tenant Act (A.R.S. § 33-1301 et seq.) expressly excludes commercial properties. All rights and remedies must be negotiated and expressly stated in the Lease.

2. LOI Enforceability: Arizona courts apply the objective intent test to determine whether an LOI creates enforceable obligations. See Savoca Masonry Co. v. Homes & Son Constr. Co., 112 Ariz. 392 (1975). Clear language distinguishing binding from non-binding provisions is essential.

3. Transaction Privilege Tax: TPT on commercial leases (A.R.S. § 42-5069) is a significant cost. The combined state/county/city rate varies by location. Ensure the Lease clearly allocates TPT responsibility and addresses TPT on all charges (Base Rent, CAM, TI reimbursements). TPT is unique to Arizona and often catches out-of-state parties by surprise.

4. Commercial Lease Enforcement: Arizona courts will not terminate a commercial lease for a "trivial or immaterial" breach, even if the lease purports to grant such right. See Foundation Dev. Corp. v. Loehmann's, Inc., 163 Ariz. 438 (1990). Draft default and remedy provisions accordingly.

5. Property Tax: Arizona's dual-rate system (primary and secondary taxes) on full cash value versus limited property value can be complex. Review the most recent notice of value from the county assessor and understand both the FCV and LPV.

6. Contractor Licensing: All contractors must hold valid ROC licenses (A.R.S. § 32-1101 et seq.). Contracts with unlicensed contractors may be unenforceable.

7. Water Rights: For properties with landscaping or industrial water needs, confirm water rights and capacity through the Arizona Department of Water Resources. Some areas are within Active Management Areas (AMAs) with strict water use regulations.

8. Dust Control: Maricopa County Rule 310 requires dust control permits for any land disturbance of 0.1 acres or more. Construction activities must comply with the dust action general permit (DAGP) requirements.

SIGNATURES

This Letter of Intent is executed as of the date first written above.

Except for the Binding Provisions in Section 18, this LOI is non-binding and is intended solely to facilitate negotiation of a definitive Lease Agreement.

LANDLORD:                                    TENANT:

Entity: _____________________________        Entity: _____________________________

By: _________________________________        By: _________________________________

Name: _______________________________        Name: _______________________________

Title: ______________________________        Title: ______________________________

Date: _______________________________        Date: _______________________________

EXHIBIT A — PREMISES FLOOR PLAN

[Attach floor plan showing the Premises within the Building, common areas, and access points]

EXHIBIT B — BUILDING SITE PLAN

[Attach site plan showing the Building, parking areas, common areas, and access points]

Sources and References

• Arizona Revised Statutes, Title 33 — Property
• Arizona Revised Statutes, Title 44, § 44-101 — Statute of Frauds
• Arizona Revised Statutes, Title 32, § 32-2101 et seq. — Real Estate Licensing
• Arizona Revised Statutes, Title 32, § 32-2156 — Real Estate Disclosures
• Arizona Revised Statutes, Title 42, § 42-5069 — TPT Commercial Lease Classification
• Arizona Revised Statutes, Title 32, § 32-1101 et seq. — Contractor Licensing
• Arizona Department of Revenue — Transaction Privilege Tax guidance
• Maricopa County Air Quality Department — Rule 310 (Fugitive Dust)
• Americans with Disabilities Act, 42 U.S.C. § 12101 et seq.