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

LETTER OF INTENT FOR COMMERCIAL LEASE — SINGLE-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 for the lease of a single-tenant property. Except for those provisions expressly identified as binding in Section 20 below, this LOI shall not create any legally binding obligation on either party. Under Arizona law, an agreement for leasing real property for a period longer than one (1) year is invalid unless in writing and signed by the party to be charged (A.R.S. § 44-101(6)).

1. PARTIES

Landlord:

Tenant:

2. PREMISES

• Property Address: [________________________________], [________________________________], Arizona [____]
• County: ☐ Maricopa ☐ Pima ☐ Pinal ☐ Coconino ☐ Other: [________________________________]
• Legal Description: ☐ Per Exhibit A ☐ To be confirmed by survey
• Building Size: Approximately [________________________________] square feet
• Land Area: Approximately [________________________________] acres
• Property Type: ☐ Office ☐ Retail ☐ Industrial / Warehouse / Distribution ☐ Flex ☐ Medical ☐ Data Center ☐ Other: [________________________________]
• Year Built / Renovated: [____] / [____]
• Zoning: [________________________________]
• Clear Height (Industrial): [____] feet
• Dock Doors: [____] ☐ Grade-level doors: [____]
• Power: [____] amps / [____] volts / ☐ 3-phase

Single-Tenant Note: As sole occupant, Tenant assumes responsibility for the entire property. The Lease must clearly allocate structural, roof, systems, site, and environmental obligations between Landlord and Tenant — particularly important under Arizona's NNN lease conventions.

3. LEASE STRUCTURE

• ☐ Absolute Triple Net (NNN): Tenant pays all Operating Expenses, Taxes, Insurance, and is responsible for all maintenance, repairs, and replacements including roof and structure ("bondable" net lease)
• ☐ Triple Net (NNN) — Modified: Tenant pays all Operating Expenses, Taxes, Insurance; Landlord retains roof and structural responsibility
• ☐ Double Net (NN): Tenant pays Taxes and Insurance; Landlord pays structural and site maintenance
• ☐ Modified Gross: Landlord includes [________________________________] in Base Rent
• ☐ Ground Lease: Tenant leases land and constructs improvements (see Section 9)
• ☐ Build-to-Suit: Landlord constructs to Tenant's specifications (see Section 8)

4. LEASE TERM AND COMMENCEMENT

• Initial Term: [____] years [____] months
• Anticipated Commencement Date: [__/__/____]
• Rent Commencement Date: [__/__/____] or upon:
• ☐ [____] days following Delivery of Premises
• ☐ Substantial Completion of Landlord's Work / Build-to-Suit
• ☐ Certificate of Occupancy
• ☐ Tenant's opening for business
• ☐ Other: [________________________________]
• Lease Expiration Date: [__/__/____]
• Fixturing Period: [____] days prior to Rent Commencement, rent-free

5. DELIVERY OF PREMISES

5.1 Delivery Condition

• ☐ Turnkey / Built-Out per approved plans
• ☐ Warm Shell (HVAC, electrical, plumbing; weather-tight)
• ☐ Cold Shell (structural shell only)
• ☐ Existing Condition / As-Is with Landlord representations
• ☐ Pad-Ready (Ground Lease — graded, utilities to property line, pad certified)
• ☐ Other: [________________________________]

5.2 Delivery Timeline

• Target Delivery: [__/__/____]
• Outside Delivery Date: [__/__/____]
• Late Delivery Remedies:
• ☐ One (1) day free Base Rent per day of delay
• ☐ [____] days free rent per day of delay
• ☐ Termination right if delay exceeds [____] days
• ☐ Liquidated damages: $[____]/day
• ☐ Other: [________________________________]

Arizona Construction Timeline Note: Construction in Arizona is subject to seasonal challenges. Summer heat (regularly exceeding 115°F in Phoenix and Tucson metro areas) can restrict construction activities during peak hours. Monsoon season (June 15 through September 30) introduces risks of dust storms (haboobs), flash flooding, and microbursts. Build-to-suit timelines should account for these seasonal factors and include specific provisions for weather-related force majeure.

6. RENT

6.1 Base Rent Schedule

• Escalation: ☐ Fixed % ([____]%) ☐ Fixed $ ($[____]/SF) ☐ CPI (Phoenix-Mesa-Scottsdale MSA) with [____]% floor / [____]% cap ☐ FMV reset every [____] years

6.2 Arizona Transaction Privilege Tax (TPT)

CRITICAL ARIZONA PROVISION: Commercial lease rents in Arizona are subject to Transaction Privilege Tax (A.R.S. § 42-5069). TPT is imposed on the lessor but is customarily passed through to the tenant as a separate line item.

• Current Combined TPT Rate (state + county + city): [____]% (verify with ADOR for the specific jurisdiction)
• TPT Applicability: All rent and charges under the Lease
• TPT on NNN Components: Confirm whether TPT applies to tax and insurance pass-throughs (ADOR guidance may vary)
• TPT Payment: ☐ Tenant pays as Additional Rent ☐ Included in Base Rent
• TPT Counties Imposing County TPT on Commercial Leases: Coconino, Gila, Maricopa, Pima, Pinal

6.3 Additional Rent (NNN Charges)

Real Estate Taxes:

• Estimated Year 1: $[____]/SF (total: $[________________________________])

Arizona Property Tax Note: Arizona uses a dual-rate assessment system. Primary property taxes fund schools, counties, cities, and community colleges. Secondary taxes fund voter-approved bonds and overrides. Both the "full cash value" (FCV) and "limited property value" (LPV) are used. The LPV increases by no more than 5% per year (unless property changes). For a single-tenant building, the entire tax burden falls on Tenant. Review the most recent Notice of Value from the [________________________________] County Assessor. Appeal deadlines are typically in late March/early April. Tax bills issue in September; first half is due October 1, second half March 1.

Insurance:

• Estimated Year 1: $[____]/SF
• Landlord maintains: property/casualty, CGL, umbrella
• Tenant maintains: CGL ($[________________________________] per occurrence / $[________________________________] aggregate), property insurance (Tenant's improvements and personal property), business interruption, workers' compensation, environmental liability if applicable

Operating Expenses / Maintenance (Single-Tenant NNN):

• Estimated Year 1: $[____]/SF

Landlord vs. Tenant Responsibility Matrix:

6.4 Free Rent / Abatement

• Period: [____] months ☐ Base Rent only ☐ Base Rent and NNN
• Recapture upon Default: ☐ Yes ☐ No

6.5 Security Deposit / Letter of Credit

• Amount: $[________________________________] (equivalent to [____] months' rent)
• Form: ☐ Cash ☐ Irrevocable Standby LOC ☐ Guaranty (Section 6.6)
• Burn-Down: Reduced to $[________________________________] after Year [____]

6.6 Guaranty

• ☐ Personal Guaranty from: [________________________________]
• ☐ Corporate / Parent Guaranty from: [________________________________]
• ☐ Limited Guaranty ($[________________________________] / [____] years)
• ☐ Good-Guy Guaranty
• ☐ No Guaranty

7. TENANT IMPROVEMENTS

7.1 TI Allowance

• Amount: $[____]/SF (total: $[________________________________])
• Application: ☐ Hard costs ☐ Hard and soft costs ☐ FF&E ☐ Cabling
• Unused: ☐ Forfeited ☐ Rent credit ☐ Cash payment
• Disbursement: ☐ Progress payments ☐ Upon completion

7.2 Landlord's Work

• Scope: [________________________________]
• Completion: [__/__/____]
• Punch list completion: [____] days

7.3 Contractor Requirements

• All contractors must hold valid Arizona Registrar of Contractors (ROC) licenses per A.R.S. § 32-1101 et seq.
• Tenant's contractor: ☐ Landlord-designated ☐ Tenant-selected, subject to Landlord approval ☐ Open
• Insurance, bonding, and lien waivers required
• Compliance with Maricopa County Air Quality Department Rule 310 (dust control) during construction

7.4 ADA and Code Compliance

• Landlord represents Building complies with ADA and Arizona building codes as of Delivery
• Tenant responsible for ongoing ADA compliance within Premises
• Code upgrades triggered by improvements: ☐ Tenant ☐ Landlord ☐ Shared

8. BUILD-TO-SUIT PROVISIONS (IF APPLICABLE)

• Design: ☐ Landlord's architect per Tenant program ☐ Tenant's architect
• GC: ☐ Landlord-selected ☐ Tenant-selected ☐ Mutually agreed; must hold valid AZ ROC license
• Budget: $[____]/SF or GMP of $[________________________________]
• Cost Overruns: ☐ Landlord ☐ Tenant ☐ Shared beyond [____]%
• Timeline: [____] months from permit issuance
• Substantial Completion: Per approved plans, governmental approvals obtained, CO issued
• Warranty: [____] year(s); manufacturer warranties assigned to Tenant

Arizona Build-to-Suit Considerations:
- HVAC systems must be designed for extreme heat conditions (design day temperature of 110°F+ for Phoenix metro)
- Roof materials should be rated for high UV exposure and thermal cycling
- Concrete pour restrictions during extreme heat (typically above 100°F)
- Dust control permits required under Maricopa County Rule 310 and ADEQ rules
- Stormwater management per Arizona Pollutant Discharge Elimination System (AZPDES) requirements
- Consider solar-ready design and EV charging infrastructure

9. GROUND LEASE PROVISIONS (IF APPLICABLE)

• Land Only: Tenant leases land and constructs all improvements
• Ground Rent: $[____] per annum, escalating [____]% every [____] years
• Improvement Ownership During Term: ☐ Tenant ☐ Landlord
• Reversion at Expiration: ☐ Improvements revert to Landlord ☐ Tenant removes ☐ Landlord purchase option at [________________________________]
• Leasehold Financing: Tenant may obtain leasehold financing with Landlord's reasonable approval
• Water Rights: Confirm adequacy of water allocation for intended use, particularly within Active Management Areas (AMAs) regulated by Arizona Department of Water Resources (ADWR)
• Assured Water Supply: For properties within AMAs, confirm whether the property has an assured or adequate water supply designation per A.R.S. § 45-576

10. PURCHASE OPTION (IF APPLICABLE)

• ☐ Tenant option to purchase:
• Exercise after Year [____]
• Price: ☐ Fixed $[________________________________] ☐ FMV ☐ Formula: [________________________________]
• Notice: [____] months
• Closing: Within [____] days of exercise
• Due Diligence: [____] days
• Title: General warranty deed; title insurance at ☐ Tenant's ☐ Landlord's ☐ Shared cost
• ☐ ROFR on Sale: [____] business days to match
• ☐ No Purchase Option

Arizona Note: Options to purchase must comply with the Statute of Frauds (A.R.S. § 44-101). A.R.S. § 32-2156 disclosure obligations apply to sales. Consider recording a memorandum of lease referencing the option to provide constructive notice under A.R.S. § 33-411 et seq. Note that Arizona's affidavit of property value (A.R.S. § 11-1134) must be filed with any transfer.

11. RENEWAL OPTIONS

• Number: [____] options of [____] years each
• Rent: ☐ FMV per Section 19 ☐ Fixed [____]% increase ☐ Greater of FMV or [____]% ☐ CPI (Phoenix-Mesa-Scottsdale MSA) with [____]% floor / [____]% cap
• Notice: [____] months prior
• Conditions: No uncured default

12. SIGNAGE

• ☐ Exclusive building-top signage
• ☐ Monument / pylon signage at entrance
• ☐ Building-mounted signage on [____] facade(s)
• ☐ Directional signage
• All signage at Tenant's cost; subject to municipal codes and CC&Rs
• Tenant responsible for permits, installation, maintenance, and removal

Arizona Signage Note: Municipal sign codes vary significantly. Phoenix, Scottsdale, Tempe, Mesa, and Tucson each have distinct regulations. Scottsdale is notably restrictive regarding illuminated and freestanding signs. Industrial/warehouse properties may have different allowances than retail or office. Verify local requirements and any master-planned community restrictions.

13. PARKING

• Total Spaces: [____] (exclusive use)
• Ratio: [____] per 1,000 SF
• ☐ Surface ☐ Covered / shaded ☐ Both
• Trailer parking / truck court: ☐ [____] spaces ☐ N/A
• ADA spaces: [____] (per code)
• EV charging stations: ☐ Existing: [____] ☐ To be installed: [____] ☐ None

Arizona Parking: Covered or shaded parking is a significant employee and customer amenity due to extreme summer heat. Consider EV charging requirements — some Arizona municipalities are adopting EV-ready building requirements.

14. ASSIGNMENT AND SUBLETTING

• Landlord consent required (not unreasonably withheld)
• Permitted Transfers: Affiliates; merger/acquisition with net worth minimum of $[________________________________]
• Recapture: ☐ Yes ☐ No
• Profit Sharing: ☐ [____]% to Landlord ☐ None

15. INSURANCE AND INDEMNIFICATION

• Mutual indemnification; mutual waiver of subrogation
• Tenant names Landlord as additional insured
• NNN: Tenant carries and pays for all property insurance (replacement cost)

Arizona Insurance Considerations: Ensure coverage addresses: monsoon damage (wind, dust, flooding), extreme heat damage to roofs and equipment, wildfire (particularly in northern AZ or urban-wildland interface areas), and earthquake (Arizona has seismic activity, particularly in central and northern regions). Verify FEMA flood zone status and whether flood insurance is required.

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

• SNDA from lender(s) within [____] days of Lease execution
• Non-disturbance of Tenant's possession if no Tenant default
• Ground lessor estoppel if applicable

17. BROKERS

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

Arizona Broker Law: All brokers must hold valid ADRE licenses (A.R.S. § 32-2101 et seq.). Broker disclosure obligations under A.R.S. § 32-2156 require disclosure of known material facts. While oral lease commission agreements may be enforceable in Arizona (unlike sale commission agreements per A.R.S. § 44-101(7)), written agreements are strongly recommended.

• Mutual broker indemnification.

18. UTILITIES AND INFRASTRUCTURE

• Electric Provider: ☐ APS ☐ SRP ☐ TEP ☐ Other: [________________________________]
• Gas Provider: ☐ Southwest Gas ☐ Other: [________________________________]
• Water/Sewer: ☐ Municipal ☐ Private well (verify water rights) ☐ Other: [________________________________]
• Telecom/Fiber: Available providers: [________________________________]
• Power Capacity: [____] amps / [____] volts; adequate for Tenant's use: ☐ Yes ☐ Upgrade required
• Solar: ☐ Existing rooftop solar ☐ Solar-ready ☐ Tenant may install solar with Landlord approval ☐ N/A
• Utility costs: ☐ Direct to Tenant ☐ Included in NNN ☐ Separately metered

Arizona Utility Note: Summer cooling costs in Arizona can be among the highest in the nation. For industrial/warehouse properties, confirm power capacity and utility infrastructure are adequate. Solar energy is increasingly common given Arizona's solar resource; consider negotiating rooftop solar rights. SRP and APS offer commercial rate plans that should be evaluated for Tenant's load profile.

19. FAIR MARKET VALUE DETERMINATION (IF APPLICABLE)

1. Negotiation: [____] days from exercise.
2. Broker Determination: Each party appoints a licensed AZ commercial broker with [____]+ years in the [________________________________] market. If determinations within [____]%, FMV is the average. Otherwise, baseball arbitration.
3. FMV Definition: Rental rate for comparable single-tenant properties of similar size, quality, and location in the [________________________________], Arizona market, considering concessions, excluding Tenant-funded improvements and goodwill.

20. BINDING PROVISIONS

Legally binding upon execution:

20.1 Exclusivity

Landlord shall not market or negotiate the Premises during the Exclusivity Period (through [__/__/____]).

20.2 Confidentiality

All terms confidential except to professional advisors.

20.3 Broker Indemnification

Section 17 indemnifications are binding.

20.4 Governing Law and Venue

Arizona law; exclusive jurisdiction in [________________________________] County, Arizona.

20.5 Expenses

Each party bears its own costs.

21. ENVIRONMENTAL AND PROPERTY CONDITION

• Landlord represents (to actual knowledge):
• ☐ No Hazardous Materials in violation of law
• ☐ Not on any contaminated sites registry (including WQARF sites)
• ☐ No USTs (or if present: [________________________________])

• ☐ No pending environmental actions

• Phase I/II ESA reports provided within [____] business days

• Tenant due diligence period: [____] days
• Pre-existing contamination responsibility: ☐ Landlord ☐ Shared ☐ Other: [________________________________]

Arizona Environmental Note: Arizona's legacy mining, agricultural, and military activities have left contamination at numerous sites. The ADEQ administers the Water Quality Assurance Revolving Fund (WQARF) program — Arizona's state Superfund equivalent. Verify the Property's status on the WQARF registry. Additional Arizona-specific concerns include: perchlorate in groundwater (common in Phoenix-area locations near former defense facilities), valley fever (Coccidioides fungus) risks from soil disturbance, and compliance with ADEQ underground storage tank regulations (A.R.S. § 49-1001 et seq.).

22. ADDITIONAL TERMS

• Holdover: [____]% of last month's Base Rent, plus NNN and TPT.
• Default Cure: [____] days monetary; [____] days non-monetary.
• Self-Help: After cure period expiration plus [____] days' notice.
• Casualty: Address monsoon/wind damage, fire, and extreme heat events. If repair exceeds [____] months or damage exceeds [____]% of replacement value, either party may terminate.
• Condemnation: Termination if taking renders Premises unsuitable. Separate condemnation awards.
• Estoppel: Within [____] business days.
• Quiet Enjoyment: Landlord covenants.
• Memorandum of Lease: Tenant may record per A.R.S. § 33-411 et seq.

23. TIMELINE AND NEXT STEPS

24. PRACTICE TIPS AND ARIZONA-SPECIFIC NOTES

For Counsel:

1. No Commercial Landlord-Tenant Statute: Arizona has no dedicated commercial landlord-tenant act. The Residential Landlord and Tenant Act (A.R.S. § 33-1301 et seq.) does not apply to commercial leases. All rights and remedies must be expressly negotiated and documented.

2. TPT is Non-Negotiable: Arizona TPT on commercial leases (A.R.S. § 42-5069) is a cost that cannot be avoided. Ensure the Lease clearly addresses TPT on all components (Base Rent, NNN pass-throughs, TI reimbursements). The combined rate varies by jurisdiction — currently ranging from approximately 1.5% to over 3% depending on city/county location.

3. HVAC Lifespan: Arizona's extreme heat significantly shortens HVAC equipment life (typically 8-12 years versus 15-20 years in milder climates). In NNN leases, negotiate clear provisions for HVAC replacement cost allocation. Consider requiring preventive maintenance contracts and an HVAC replacement reserve.

4. Water: Arizona water rights are complex and jurisdiction-specific. Within Active Management Areas (Phoenix, Tucson, Prescott, Pinal, and Santa Cruz AMAs), the Groundwater Management Act imposes strict usage regulations. For ground leases or properties with significant water needs, confirm water rights and supply adequacy with ADWR.

5. Immaterial Breach: Arizona courts will not terminate a commercial lease for a trivial breach. Foundation Dev. Corp. v. Loehmann's, Inc., 163 Ariz. 438 (1990). Draft specific, objectively measurable events of default.

6. ROC Licensing: Contracts with unlicensed contractors are unenforceable (A.R.S. § 32-1153). Verify all contractors' ROC status before approving work.

7. Dust Control: Any site disturbance of 0.1 acres or more in Maricopa County requires a dust control permit under Rule 310. ADEQ administers similar requirements in other counties. Non-compliance can result in significant fines.

8. Solar Rights: Arizona has strong solar access protections (A.R.S. § 33-439). Consider rooftop solar installation rights, particularly for large single-tenant industrial or warehouse properties.

SIGNATURES

Except for the Binding Provisions in Section 20, this LOI is non-binding.

LANDLORD:                                    TENANT:

Entity: _____________________________        Entity: _____________________________

By: _________________________________        By: _________________________________

Name: _______________________________        Name: _______________________________

Title: ______________________________        Title: ______________________________

Date: _______________________________        Date: _______________________________

EXHIBIT A — SITE PLAN AND BUILDING FOOTPRINT

[Attach site plan showing building, parking, truck court, access, and property boundaries]

EXHIBIT B — LEGAL DESCRIPTION

[Attach legal description or reference to recorded plat]

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 — Disclosure Requirements
• Arizona Revised Statutes, Title 42, § 42-5069 — TPT Commercial Lease
• Arizona Revised Statutes, Title 32, § 32-1101 et seq. — Contractor Licensing (ROC)
• Arizona Revised Statutes, Title 45 — Waters (Groundwater Management Act)
• Arizona Revised Statutes, Title 49, § 49-1001 et seq. — Underground Storage Tanks
• Arizona Department of Revenue — TPT Commercial Lease guidance
• Arizona Department of Environmental Quality — WQARF registry
• Maricopa County Air Quality Department — Rule 310
• Americans with Disabilities Act, 42 U.S.C. § 12101 et seq.