Commercial Lease Letter of Intent (Single-Tenant)

LETTER OF INTENT -- SINGLE-TENANT COMMERCIAL LEASE

CONFIDENTIAL

[__/__/____]

[________________________________]
[________________________________]
[________________________________]
[________________________________]

Re: Letter of Intent for Lease of Premises Located at [________________________________]

Dear [________________________________]:

This Letter of Intent ("LOI") sets forth the principal terms under which [________________________________] ("Tenant") proposes to lease certain premises from [________________________________] ("Landlord"). Except for the Binding Provisions identified in Section 18, this LOI is intended to serve as a basis for negotiation of a definitive lease agreement and is not intended to create binding obligations between the parties. See Restatement (Second) of Contracts § 27 (distinguishing binding preliminary agreements from non-binding negotiations).

1. PREMISES AND PROPERTY DESCRIPTION

Measurement Standard: Rentable and usable area shall be measured in accordance with BOMA International Standards (ANSI/BOMA Z65.1-2017 for Office or ANSI/BOMA Z65.2-2012 for Industrial, as applicable). Any dispute regarding measurement shall be resolved by a mutually agreed independent architect.

2. LEASE TERM AND COMMENCEMENT

• Initial Term: [____] years ([____] months)
• Lease Commencement Date: The earlier of (a) [__/__/____], or (b) [____] days following Landlord's delivery of the Premises in the condition required under Section 5
• Rent Commencement Date: The later of (a) [__/__/____], or (b) [____] days following Landlord's delivery of the Premises with Landlord Work substantially complete (the "Fixturing Period")
• Lease Expiration Date: [__/__/____], subject to renewal options below
• Early Access: Tenant shall have access to the Premises [____] days prior to the Rent Commencement Date for fixturing, furniture installation, and cabling at Tenant's risk and expense, subject to insurance requirements

Delayed Delivery Remedies

If Landlord fails to deliver the Premises by [__/__/____] (the "Outside Delivery Date"):

☐ Tenant shall receive one (1) day of free Base Rent for each day of delay beyond the Outside Delivery Date
☐ If delivery is delayed more than [____] days beyond the Outside Delivery Date, Tenant may terminate this LOI and any resulting lease upon [____] days' written notice
☐ Landlord shall reimburse Tenant for holdover costs at Tenant's current premises, not to exceed $[________] per month

3. BASE RENT AND ESCALATIONS

Base Rent Schedule

Rent Escalation Structure (select one):

☐ Fixed Escalation: [____]% annual increase over prior year's Base Rent
☐ CPI Adjustment: Annual adjustment based on Consumer Price Index (CPI-U, All Urban Consumers, [________] MSA), with a floor of [____]% and a cap of [____]%
☐ Fair Market Value Adjustment: FMV reset at Year [____], determined per Section 15
☐ Step Increases: Per schedule above

Rent Abatement

☐ [____] months of Base Rent abatement, commencing [________________________________]
☐ Abatement conditioned upon Tenant not being in default during abatement period
☐ Recapture of abated rent upon early termination due to Tenant default

4. ADDITIONAL RENT AND OPERATING EXPENSES

Lease Structure (select one):

☐ Triple Net (NNN): Tenant pays Base Rent plus pro rata share of real estate taxes, insurance, and common area maintenance (CAM)
☐ Modified Gross: Tenant pays Base Rent plus increases over Base Year [____] for taxes, insurance, and CAM
☐ Full Service Gross: Base Rent includes all operating expenses for Base Year [____]; Tenant pays pro rata share of increases above Base Year
☐ Industrial Gross: [________________________________]

NNN / Passthrough Estimates

Expense Protections

• Controllable Expense Cap: Annual increases in controllable operating expenses (excluding taxes, insurance, and utilities) shall not exceed [____]% over the prior year
• Gross-Up: If the building is less than [____]% occupied, variable operating expenses shall be "grossed up" to reflect [____]% occupancy
• Audit Right: Tenant shall have the right to audit Landlord's operating expense records within [____] days following receipt of annual reconciliation. If audit reveals overcharge exceeding [____]%, Landlord shall reimburse reasonable audit costs
• Exclusions from Operating Expenses: Capital expenditures (except those required by law enacted after lease commencement, amortized over useful life), leasing commissions, debt service, depreciation, Landlord's income taxes, costs of correcting construction defects

5. TENANT IMPROVEMENTS AND LANDLORD WORK

Tenant Improvement Allowance

• TI Allowance: $[____] per RSF ($[________] total)
• Additional TI Allowance: $[____] per RSF available as amortized rent at [____]% interest over [____] months (subject to credit approval)
• Unused TI Allowance: ☐ Forfeited ☐ Applied to rent ☐ Applied to FF&E/cabling/moving costs (up to [____]%)
• Disbursement: Progress payments upon receipt of lien waivers, AIA G702/G703 applications, and architect certifications

Landlord's Work

Landlord shall deliver the Premises in the following condition:

☐ Warm Shell: Includes HVAC to Tenant's space, fire/life safety to code, restrooms to code, electrical panel with [____] amps, concrete or raised floor ready for Tenant finish
☐ Turn-Key Build-Out: Per mutually approved plans and specifications
☐ As-Is: Tenant accepts the Premises in its current condition

Construction Process

• Tenant to submit space plans within [____] days of lease execution
• Landlord to approve or provide comments within [____] business days
• Construction documents due within [____] days of space plan approval
• Permits to be obtained by ☐ Landlord ☐ Tenant within [____] days
• Substantial completion target: [__/__/____]

ADA Compliance (42 U.S.C. § 12183)

• Landlord Responsibility: Common areas, building entries, restrooms, parking, and base building systems shall comply with the Americans with Disabilities Act (ADA) and applicable state accessibility codes
• Tenant Responsibility: Tenant improvements within the Premises shall comply with ADA requirements for places of public accommodation (if applicable) and Title I employment accessibility requirements
• Trigger for Path-of-Travel Upgrades: If Tenant improvements exceed [____]% of the assessed value of the Premises, path-of-travel upgrades may be required under applicable building code

6. PERMITTED USE AND EXCLUSIVITY

• Permitted Use: [________________________________] and any lawful use incidental thereto, subject to applicable zoning and land use approvals
• Exclusive Use: ☐ Not applicable ☐ Landlord shall not lease space in the building/project to any tenant whose primary business is [________________________________]

Restrictive Covenants

☐ Co-Tenancy Requirement: The following anchor tenants must be open and operating: [________________________________]. If co-tenancy is not met, Tenant may [________________________________]
☐ Operating Covenant: Tenant shall continuously operate during [________________________________] hours
☐ Go-Dark Right: Tenant may cease operations upon [____] days' notice, provided Tenant continues paying rent and maintaining the Premises
☐ Radius Restriction: Tenant shall not operate a competing business within [____] miles of the Premises for uses consisting of [________________________________]

7. RENEWAL OPTIONS

• Number of Renewal Options: [____]
• Renewal Term Length: [____] years each
• Notice Required: Written notice not less than [____] months and not more than [____] months prior to expiration of the then-current term

Renewal Rent (select one):

☐ Fixed Escalation: [____]% above the final year's Base Rent
☐ Fair Market Value: Determined per Section 15
☐ CPI Adjustment: [____]% floor / [____]% cap
☐ Greater of: FMV or [____]% above the final year's Base Rent

Renewal Conditions

• Tenant not in default at time of exercise or commencement of renewal term
• Tenant shall not have assigned the lease or sublet more than [____]% of the Premises (unless to permitted transferee)
• ☐ Renewal is personal to original named Tenant only

8. EXPANSION, RIGHT OF FIRST OFFER, AND RIGHT OF FIRST REFUSAL

☐ Right of First Offer (ROFO): Before marketing [________________________________] (the "ROFO Space"), Landlord shall offer such space to Tenant at Landlord's proposed terms. Tenant shall have [____] business days to accept
☐ Right of First Refusal (ROFR): If Landlord receives a bona fide third-party offer for [________________________________], Landlord shall present such offer to Tenant. Tenant shall have [____] business days to match
☐ Fixed Expansion Option: Tenant may elect to expand into [________________________________] on or before [__/__/____] at $[____]/RSF with TI allowance of $[____]/RSF
☐ Contraction Option: After Lease Year [____], Tenant may surrender up to [____] RSF upon [____] months' notice and payment of a contraction fee equal to [________________________________]
☐ Termination Option: After Lease Year [____], Tenant may terminate upon [____] months' notice and payment of unamortized TI costs, leasing commissions, and [____] months' rent

9. ASSIGNMENT AND SUBLETTING

• Landlord's prior written consent required, not to be unreasonably withheld, conditioned, or delayed
• Response Time: Landlord shall respond within [____] business days of receiving Tenant's request and all required information
• Permitted Transfers (no consent required): Transfers to affiliates, subsidiaries, parent companies, or successors by merger, consolidation, or acquisition of substantially all assets, provided the transferee has a net worth equal to or greater than Tenant's at time of transfer
• Recapture Right: ☐ Landlord has recapture right ☐ No recapture right
• Profit Sharing: ☐ None ☐ [____]% of sublease profits (net of Tenant's reasonable costs) shared with Landlord after [____] months
• Release of Tenant: ☐ Original Tenant remains liable ☐ Released upon assignment to transferee meeting financial criteria

10. SIGNAGE

• Building-Top Signage: ☐ Yes ☐ No -- [________________________________]
• Monument Signage: ☐ Yes ☐ No -- [________________________________]
• Suite/Lobby Signage: ☐ Yes ☐ No -- [________________________________]
• Directory Listing: ☐ Yes ☐ No
• All signage subject to Landlord's reasonable approval of design, size, and placement, and compliance with applicable sign ordinances and CC&Rs
• Landlord shall maintain signage infrastructure; Tenant responsible for fabrication and installation costs

11. PARKING

• Allocated Spaces: [____] spaces per 1,000 RSF ([____] total spaces)
• Reserved Spaces: [____] reserved/covered spaces at $[____]/space/month
• Unreserved Spaces: [____] unreserved spaces at ☐ No charge ☐ $[____]/space/month
• EV Charging: [____] EV-ready spaces ☐ at Tenant cost ☐ at Landlord cost
• ADA Accessible Spaces: Per applicable code requirements (42 U.S.C. § 12183; state building code)

12. INSURANCE AND INDEMNITY

• Tenant's Insurance: Commercial general liability ($[________] per occurrence / $[________] aggregate), property insurance on Tenant's personal property, workers' compensation as required by law, business automobile liability, and umbrella/excess liability of $[________]
• Landlord's Insurance: Building and common area property insurance (replacement cost), commercial general liability, and rental income/business interruption insurance
• Mutual Waiver of Subrogation: Each party waives claims against the other to the extent covered by property insurance, and each party's insurer shall endorse its policy accordingly
• Mutual Indemnity: Each party shall indemnify the other for claims arising from the indemnifying party's negligence or willful misconduct in or about the Premises and common areas

13. ENVIRONMENTAL MATTERS

Environmental Due Diligence (42 U.S.C. § 9601 et seq. -- CERCLA)

☐ Landlord shall provide Tenant with a Phase I Environmental Site Assessment (ASTM E1527-21) within [____] days of LOI execution
☐ If Phase I identifies Recognized Environmental Conditions (RECs), Landlord shall complete a Phase II assessment at Landlord's expense within [____] days
☐ Tenant to conduct its own Phase I at Tenant's expense

Environmental Representations

• Landlord represents that, to Landlord's actual knowledge: (a) no Hazardous Materials (as defined in CERCLA and applicable state law) have been released on or from the Premises in violation of Environmental Laws; (b) no underground storage tanks are located on the Premises; (c) the Premises is not listed on EPA's National Priorities List or any state equivalent
• Tenant shall not use, generate, store, or dispose of Hazardous Materials on the Premises except in de minimis quantities customary for the Permitted Use and in compliance with all Environmental Laws
• Landlord shall be responsible for remediation of any pre-existing environmental contamination

14. SECURITY DEPOSIT AND GUARANTY

• Security Deposit: $[________] (equivalent to [____] months' Base Rent)
• Form: ☐ Cash ☐ Letter of Credit (from a bank reasonably acceptable to Landlord, with annual renewal and 30-day draw notice)
• Burn-Down: Security deposit shall reduce to $[________] after Lease Year [____], provided Tenant is not in default
• Guaranty: ☐ Not required ☐ Personal guaranty by [________________________________] ☐ Corporate guaranty by [________________________________], limited to $[________] or [____] months' rent, whichever is less (or unlimited -- select one)

15. FAIR MARKET VALUE DETERMINATION (IF APPLICABLE)

If any rent determination is based on Fair Market Value ("FMV"):

1. Negotiation: Landlord and Tenant shall negotiate FMV in good faith for [____] days
2. Broker Determination: If no agreement, each party appoints a licensed commercial real estate broker within [____] days. If the two brokers' determinations are within [____]% of each other, FMV shall be the average. If not, the two brokers shall appoint a third broker, and FMV shall be the average of the two closest determinations ("Baseball Arbitration")
3. Exclusions from FMV: FMV shall exclude the value of Tenant's improvements paid for by Tenant, any sublease premium, and below-market or distressed transactions

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

• Landlord shall obtain an SNDA from each existing and future mortgagee or ground lessor, in commercially reasonable form, within [____] days of lease execution
• SNDA shall provide that so long as Tenant is not in default, Tenant's possession and rights under the lease shall not be disturbed by foreclosure or deed in lieu
• Tenant shall deliver estoppel certificates within [____] business days of Landlord's request (not more frequently than [____] times per year)

17. BROKERS

• Landlord's Broker: [________________________________]
• Tenant's Broker: [________________________________]
• Commissions shall be paid by Landlord pursuant to separate agreement(s)
• Each party represents it has dealt with no broker other than those named above and shall indemnify the other for claims by any other broker

18. BINDING PROVISIONS

Notwithstanding the non-binding nature of this LOI, the following provisions are binding and enforceable upon execution by both parties:

(a) Exclusivity. For a period of [____] days from the date hereof (the "Exclusivity Period"), Landlord shall not negotiate with, solicit, or accept proposals from any other party for the lease of the Premises. If a definitive lease is not executed within the Exclusivity Period, this exclusivity obligation shall terminate automatically unless extended by mutual written agreement.

(b) Confidentiality. The terms of this LOI and all negotiations related hereto shall be treated as confidential and shall not be disclosed to any third party except to each party's attorneys, accountants, brokers, lenders, and other professional advisors on a need-to-know basis.

(c) Broker Indemnification. Each party's indemnification obligations regarding brokers as set forth in Section 17.

(d) Expenses. Each party shall bear its own costs and expenses (legal, brokerage, and otherwise) in connection with the negotiation and documentation of this LOI and the definitive lease, whether or not a lease is executed.

(e) Governing Law. This LOI shall be governed by and construed in accordance with the laws of the State of [________________________________], without regard to conflict of laws principles. Venue for any disputes arising under the Binding Provisions shall be in [________________________________] County, [________________________________].

19. DUE DILIGENCE AND CONDITIONS PRECEDENT

The following conditions must be satisfied or waived prior to execution of the definitive lease:

☐ Tenant's satisfactory review of building plans, systems, and condition reports within [____] days
☐ Tenant's satisfactory review of title commitment, survey, and CC&Rs within [____] days
☐ Tenant's receipt and approval of Phase I Environmental Site Assessment
☐ Tenant's receipt and approval of zoning confirmation letter or use permit
☐ Tenant's board/management approval within [____] days
☐ Landlord's approval of Tenant's financial statements and credit
☐ Landlord's receipt of SNDA from existing lender(s)
☐ [________________________________]

20. TIMELINE FOR LEASE NEGOTIATION

21. NON-BINDING NATURE

Except for the Binding Provisions set forth in Section 18, this LOI is not intended to create, and shall not be deemed to create, any binding obligation on either party. A binding lease shall exist only upon the execution and delivery of a mutually acceptable definitive lease agreement. Either party may withdraw from negotiations at any time prior to execution of the definitive lease without liability to the other party (subject to the Binding Provisions). See Quake Construction, Inc. v. American Airlines, Inc., 141 Ill. 2d 281 (1990) (distinguishing binding preliminary agreements from non-binding negotiations based on parties' expressed intent and specificity of terms).

ACCEPTANCE

If the foregoing terms are acceptable, please execute below and return one copy to the undersigned. Upon execution by both parties, the Binding Provisions shall become effective immediately.

This LOI shall expire if not executed by both parties on or before [__/__/____].

LANDLORD:                                    TENANT:

Entity: ____________________________         Entity: ____________________________

By: ________________________________         By: ________________________________

Name: ______________________________         Name: ______________________________

Title: _____________________________         Title: _____________________________

Date: ______________________________         Date: ______________________________

PRACTICE TIPS

1. Binding vs. Non-Binding Language: Clearly label which provisions are binding and which are not. Courts in many jurisdictions will enforce an LOI -- or portions of it -- if the language reflects an intent to be bound. See Quake Construction, Inc. v. American Airlines, Inc., 141 Ill. 2d 281 (1990); Teachers Insurance & Annuity Ass'n v. Tribune Co., 670 F. Supp. 491 (S.D.N.Y. 1987). Include an express statement that no binding lease exists until a definitive agreement is fully executed.

2. Exclusivity Period: Negotiate a realistic exclusivity window. Too short and lease negotiations may not conclude; too long and the landlord may resist. 30-60 days is typical for straightforward deals; 90-120 days for complex build-outs.

3. Tenant Improvement Allowance: Ensure the TI allowance is sufficient for the intended use. Obtain contractor estimates before committing to an LOI. Consider whether unused TI can be applied to rent, moving costs, or FF&E.

4. Operating Expense Protections: Controllable expense caps, gross-up provisions, and audit rights are critical in NNN and modified gross leases. Negotiate specific exclusions from operating expenses (capital improvements, leasing costs, Landlord's overhead).

5. Environmental Due Diligence: Under CERCLA (42 U.S.C. § 9601 et seq.), tenants can face liability as "operators" of contaminated facilities. Require a Phase I ESA and carefully allocate responsibility for pre-existing contamination in the lease.

6. ADA Compliance: Under 42 U.S.C. § 12183, landlords and tenants share responsibility for ADA compliance. Clearly delineate who is responsible for base building accessibility vs. tenant space accessibility, particularly for "path of travel" upgrades triggered by tenant improvements.

7. SNDA: Always require the landlord to deliver a Subordination, Non-Disturbance, and Attornment Agreement from its lender(s). Without an SNDA, a foreclosure could extinguish the tenant's lease.

8. Fair Market Value Disputes: If renewal rent is based on FMV, specify the determination methodology in advance. "Baseball arbitration" (where the arbitrator must choose one party's number) tends to produce more reasonable proposals from both sides.

9. Assignment and Subletting: Negotiate broad "permitted transfer" carve-outs for affiliates, subsidiaries, and corporate restructurings. Resist landlord recapture rights, which allow the landlord to terminate the lease and deal directly with the proposed subtenant/assignee.

10. State-Specific Considerations: Commercial lease law varies significantly by state. Key variations include: (a) whether a written lease is required under the Statute of Frauds (leases over 1 year generally must be in writing); (b) landlord's duty to mitigate damages upon tenant default; (c) self-help eviction restrictions; (d) security deposit regulations; (e) rent control or commercial rent stabilization (limited jurisdictions).

SOURCES AND REFERENCES

• Restatement (Second) of Contracts §§ 27, 33 (Preliminary Agreements; Certainty)
• Quake Construction, Inc. v. American Airlines, Inc., 141 Ill. 2d 281, 565 N.E.2d 990 (1990)
• Americans with Disabilities Act, 42 U.S.C. § 12183
• CERCLA, 42 U.S.C. § 9601 et seq.
• BOMA International Measurement Standards (ANSI/BOMA Z65.1-2017; Z65.2-2012)
• ASTM E1527-21 (Standard Practice for Environmental Site Assessments: Phase I)
• IRS Publication 946 (Depreciation of Tenant Improvements under 26 U.S.C. § 168)