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

LETTER OF INTENT -- SINGLE-TENANT COMMERCIAL LEASE (CALIFORNIA)

CONFIDENTIAL -- FOR SETTLEMENT AND NEGOTIATION PURPOSES ONLY

Date: [__/__/____]

Delivered via: ☐ Email ☐ Hand Delivery ☐ Certified Mail ☐ Overnight Courier

RECITALS AND PURPOSE

This Letter of Intent ("LOI") sets forth the principal terms upon which [________________________________] ("Landlord") and [________________________________] ("Tenant") propose to enter into a definitive commercial lease agreement (the "Lease") for the entirety of the property described below on a single-tenant basis. Except for the Binding Provisions identified in Section 22 below, this LOI is intended to be non-binding and shall not constitute or create any legally binding obligation on either party to consummate the transaction described herein.

California Practice Note: Under Copeland v. Baskin Robbins U.S.A., 96 Cal.App.4th 1251 (2002), an agreement to negotiate may be enforceable and may impose a duty of good faith and fair dealing. Reliance damages (out-of-pocket costs, missed opportunities) may be recoverable. The parties should clearly delineate binding versus non-binding provisions.

1. PARTIES

Landlord:

• Legal Name: [________________________________]
• Entity Type: [________________________________]
• State of Organization: [________________________________]
• Principal Address: [________________________________]
• Contact Person: [________________________________]
• Email: [________________________________]
• Phone: [________________________________]

Tenant:

• Legal Name: [________________________________]
• Entity Type: [________________________________]
• State of Organization: [________________________________]
• Principal Address: [________________________________]
• Contact Person: [________________________________]
• Email: [________________________________]
• Phone: [________________________________]

2. PREMISES DESCRIPTION

Property:

• Property Address: [________________________________]
• County: [________________________________], California
• APN (Assessor's Parcel Number): [________________________________]
• Property Type: ☐ Industrial / Warehouse ☐ Office ☐ Retail (Freestanding) ☐ Flex ☐ Medical ☐ R&D ☐ Other: [____]
• Total Building Area: [________________________________] RSF
• Land Area: Approximately [________________________________] acres / SF
• Year Built / Last Renovated: [____] / [____]
• Clear Height (if warehouse/industrial): [____] feet
• Loading: [____] dock-high doors; [____] grade-level doors
• Power: [____] amps / [____] volts / [____] phase
• HVAC: ☐ Central ☐ Rooftop Units ☐ Split Systems ☐ Other: [____]

Single-Tenant Specific:

• This LOI contemplates Tenant's lease of the entirety of the Building and, to the extent applicable, exclusive use of the surrounding parking and land areas.
• ☐ Build-to-Suit: Landlord to construct improvements per mutually agreed specifications (see Section 7)
• ☐ Existing Building: Tenant to occupy existing improvements

Measurement Standard:

• ☐ BOMA 2017 (Office) ☐ BOMA 2010 (Retail) ☐ Actual / As-Built ☐ Other: [________________________________]

3. LEASE TERM AND COMMENCEMENT

• Initial Term: [____] years [____] months
• Anticipated Commencement Date: [__/__/____]
• Rent Commencement Date: ☐ Same as Commencement Date ☐ [____] days after Commencement Date ☐ Upon Substantial Completion of Landlord Work ☐ Upon issuance of Certificate of Occupancy ☐ Other: [________________________________]
• Expiration Date: [__/__/____]
• Early Access / Fixturing Period: [____] days prior to the Commencement Date for fixturing at no charge for Base Rent (Tenant responsible for utilities and insurance)

4. DELIVERY AND LATE DELIVERY REMEDIES

• Delivery Condition: ☐ Warm Shell ☐ Cold Dark Shell ☐ As-Is ☐ Turnkey / Build-to-Suit Complete ☐ Other: [____]
• Target Delivery Date: [__/__/____]
• Outside Delivery Date: [__/__/____]
• Late Delivery Abatement: One (1) day of free Base Rent for each day of delay beyond the Outside Delivery Date.
• Extended Delay Termination: If delivery does not occur within [____] days after the Outside Delivery Date, Tenant may terminate the Lease upon [____] days' written notice, and Landlord shall return all deposits and reimburse Tenant's documented out-of-pocket costs up to $[________________________________].

5. BASE RENT AND ESCALATIONS

Lease Structure: ☐ Absolute NNN ☐ NNN ☐ Double Net (NN) ☐ Modified Gross ☐ Full Service Gross

• Annual Escalation: ☐ Fixed at [____]% per annum ☐ CPI-based (capped at [____]%) ☐ FMV reset at Year [____] ☐ Other: [________________________________]
• Free Rent / Abatement: [____] months of Base Rent abatement following the Commencement Date

6. ADDITIONAL RENT -- NNN CHARGES (SINGLE-TENANT SPECIFIC)

Triple Net (NNN) Structure:

As the sole tenant, Tenant shall be responsible for payment of 100% of the following, in addition to Base Rent:

(a) Real Property Taxes:

• All real property taxes, assessments, and governmental charges levied against the Property
• Estimated Year 1: $[____]/RSF
• Tenant's obligation includes any supplemental tax bills

(b) Insurance:

• Property insurance (full replacement cost), commercial general liability, and such other coverages as required by the Lease
• Estimated Year 1: $[____]/RSF

(c) Common Area / Property Maintenance:

• All costs of maintaining, repairing, and operating the Property, including but not limited to: landscaping, parking lot maintenance, exterior lighting, roof and structural maintenance (allocation per Section 8 below), HVAC maintenance, pest control, trash removal, and property management fees
• Estimated Year 1: $[____]/RSF

(d) Total Estimated NNN Charges (Year 1): $[____]/RSF

Proposition 13 Note (Cal. Rev. & Tax. Code § 60 et seq.): Under Proposition 13, real property is reassessed upon a "change in ownership." In a single-tenant NNN lease where Tenant bears 100% of property taxes, the parties should address: (i) whether a sale of the Property by Landlord during the Term triggers a reassessment that is passed through to Tenant or absorbed by Landlord; (ii) base year protections; and (iii) whether the NNN obligation includes supplemental taxes resulting from reassessment. This is a material economic term and should be negotiated carefully.

Mello-Roos / Special Assessments: Confirm whether the Property is within a Mello-Roos Community Facilities District (Gov. Code § 53311 et seq.) or other special assessment district, which can impose significant additional charges beyond ad valorem taxes.

7. TENANT IMPROVEMENTS, BUILD-TO-SUIT, AND LANDLORD WORK

Option A: Tenant Improvement Allowance (Existing Building)

• TIA Amount: $[____] per RSF (total: approximately $[________________________________])
• Disbursement: ☐ Lump sum upon completion ☐ Progress payments ☐ Rent credit
• Unused TIA: ☐ Forfeited ☐ Applied as rent credit up to [____]% ☐ Cash payment to Tenant up to [____]%
• TIA must be utilized within [____] months of the Commencement Date

Option B: Build-to-Suit (New Construction or Major Renovation)

• Landlord shall construct or renovate the Building substantially in accordance with mutually agreed plans, specifications, and a construction budget of approximately $[________________________________].
• Design Phase: Tenant to provide space plan within [____] days of LOI execution; detailed construction drawings within [____] days thereafter.
• Construction Timeline: Landlord to commence construction within [____] days of permit issuance; target substantial completion within [____] months.
• Cost Overruns: ☐ Landlord bears all overruns ☐ Tenant bears overruns above $[____] ☐ Shared [____]% Landlord / [____]% Tenant
• Change Orders: Tenant-initiated change orders shall be at Tenant's cost; Landlord must provide written cost estimates within [____] business days.

Code Compliance Allocation:

CASp / Accessibility Disclosure (Cal. Civ. Code § 1938): Landlord must disclose in the Lease whether a CASp inspection has been completed and whether the Property meets applicable accessibility standards. Tenant has the right to request a CASp inspection. Unless otherwise stipulated, the Landlord is presumed responsible for remedying any ADA violations. In a single-tenant NNN lease, the parties should clearly allocate ADA compliance costs.

CALGreen: Major tenant improvements and build-to-suit construction trigger mandatory CALGreen compliance, including commissioning for projects over 10,000 SF, water efficiency, energy efficiency, materials selection, and indoor air quality standards.

Seismic Retrofit: For buildings in seismic hazard zones (Alquist-Priolo, Seismic Hazards Mapping Act), Landlord should disclose any retrofit requirements. Local ordinances in Los Angeles and San Francisco mandate retrofits for unreinforced masonry (URM) and non-ductile concrete buildings. Seismic work triggers ADA compliance obligations.

8. MAINTENANCE, REPAIR, AND STRUCTURAL RESPONSIBILITIES

Single-Tenant Maintenance Allocation:

• Capital Expenditure Threshold: Repairs exceeding $[________________________________] shall be considered capital expenditures and shall be the responsibility of ☐ Landlord ☐ Tenant ☐ Shared per agreement.
• Roof and Structural Warranty: Landlord shall warrant the roof, foundation, and structural elements for [____] years from the Commencement Date (or from completion of build-to-suit construction).

Single-Tenant Practice Note: In an Absolute NNN or NNN lease, the tenant typically bears virtually all maintenance and repair obligations, including roof, structure, and parking lot. However, this is negotiable, and many NNN leases retain structural and roof responsibilities with the Landlord, with costs amortized and passed through as Additional Rent. The allocation should be clearly defined in the LOI to avoid Lease negotiation delays.

9. PERMITTED USE

• Primary Use: [________________________________]
• Ancillary Uses: [________________________________]
• Prohibited Uses: [________________________________]
• Zoning: Current zoning designation: [________________________________]; Tenant's use ☐ is ☐ is not permitted by right under current zoning.
• Entitlements / Permits Required: ☐ None ☐ Conditional Use Permit ☐ Variance ☐ Other: [________________________________]
• Tenant shall have the right to use the Property for any lawful purpose permitted under the applicable zoning ordinance, subject to Landlord's reasonable approval for uses not contemplated by this LOI.

10. PURCHASE OPTION (SINGLE-TENANT SPECIFIC)

☐ Not Applicable -- No purchase option

☐ Purchase Option Included:

• Tenant shall have the option to purchase the Property during the Term upon the following terms:
• Exercise Window: Exercisable after Year [____] of the initial Term, upon [____] months' prior written notice
• Purchase Price: ☐ Fair Market Value at time of exercise ☐ Fixed price of $[________________________________] ☐ Formula: [________________________________]
• FMV Determination: If FMV, determined by MAI appraisal process substantially similar to the FMV renewal process in Section 11
• Due Diligence Period: [____] days from exercise
• Closing: Within [____] days of completion of due diligence
• Existing Lease Termination: The Lease shall terminate upon close of escrow
• Tenant's Improvements Credit: Tenant shall receive a credit at closing for the unamortized cost of Tenant-funded improvements (not TIA-funded improvements)

☐ Right of First Refusal to Purchase:

• If Landlord receives a bona fide third-party offer to purchase the Property, Tenant shall have [____] business days to match the offer on the same terms

California Practice Note: Purchase options in leases may trigger Proposition 13 reassessment issues. If the purchase option price is below market, the option itself may be considered a change in ownership for reassessment purposes. Consult with a tax advisor regarding the proper structuring of any purchase option.

11. RENEWAL OPTIONS

• Number of Options: [____] renewal option(s) of [____] years each
• Notice Period: Written notice no later than [____] months prior to expiration
• Renewal Rent: ☐ Fair Market Value ☐ Fixed at $[____]/RSF ☐ [____]% increase over expiring rent ☐ Greater of FMV or [____]% increase

FMV Determination Process (if applicable):

1. Landlord and Tenant attempt to agree within [____] days of exercise notice.
2. If unable to agree, each party appoints a licensed MAI appraiser within [____] days.
3. If two appraisals within [____]%, FMV = average.
4. If not, third appraiser selected; FMV determined by baseball arbitration (third appraiser selects whichever of the two original appraisals is nearest to the third appraisal).
5. FMV excludes Tenant's improvements, goodwill, and going-concern value. Comparables based on single-tenant properties of similar size, age, quality, and location.
6. Minimum renewal rent: ☐ No floor ☐ Floor at [____]% of expiring Base Rent

12. SIGNAGE

• Tenant shall have exclusive signage rights for the Building and Property, including:
• ☐ Building fascia / exterior signage
• ☐ Monument / pylon signage
• ☐ Directional signage
• ☐ Flagpole / banner rights
• All signage subject to applicable local sign ordinances, CC&Rs, and Landlord's reasonable approval of design and placement.
• Landlord to disclose any existing CC&R or local signage restrictions: [________________________________]

13. PARKING AND SITE

• Parking Spaces: [____] total spaces (ratio: [____] per 1,000 RSF)
• Type: ☐ Surface ☐ Covered ☐ Structured
• Exclusive Use: As sole tenant, Tenant has exclusive use of all parking and common areas on the Property
• EV Charging: ☐ Existing ☐ To be installed by Landlord ☐ To be installed by Tenant ☐ Not applicable
• Yard / Outdoor Storage: ☐ Permitted in designated area of approximately [____] SF ☐ Not permitted
• Trailer Parking: ☐ [____] trailer stalls available ☐ Not applicable

14. ASSIGNMENT AND SUBLETTING

• Assignment or subletting requires Landlord's prior written consent, not to be unreasonably withheld, conditioned, or delayed.
• Permitted Transfers (No Consent Required): Transfers to affiliates, successors by merger or consolidation, or purchasers of all or substantially all of Tenant's assets, provided the successor has a tangible net worth equal to or greater than $[________________________________].
• Profit Sharing: ☐ Not applicable (single-tenant) ☐ Landlord entitled to [____]% of subletting profit after Tenant's costs
• Recapture: ☐ No recapture right ☐ Landlord may recapture upon request to assign entire Lease

15. INSURANCE AND INDEMNITY

Tenant Insurance Requirements (Single-Tenant NNN):

• Commercial General Liability: $[________________________________] per occurrence / $[________________________________] aggregate
• Property Insurance (if NNN): Full replacement cost of Building and all improvements
• Workers' Compensation: Statutory limits
• Business Interruption: [____] months minimum
• Environmental Liability: ☐ Required ☐ Not required
• Earthquake Insurance: ☐ Required (California-specific) ☐ Not required ☐ Shared cost with Landlord
• Flood Insurance: ☐ Required (if in flood zone) ☐ Not required

Mutual Provisions:

• Mutual waiver of subrogation
• Landlord named as additional insured on Tenant's CGL policy; Tenant named as additional insured on Landlord's property policy (if applicable)
• Mutual indemnification for negligence or willful misconduct

California Earthquake Note: California is a high seismic zone. In single-tenant NNN leases, the allocation of earthquake insurance costs is a critical negotiation point. Standard property policies exclude earthquake damage. Parties should agree on coverage levels, deductible sharing, and whether earthquake insurance premiums are included in NNN charges.

16. ENVIRONMENTAL

Landlord Environmental Representations:

• Landlord represents that, to Landlord's actual knowledge: (i) no Hazardous Materials have been released on, under, or from the Property in violation of Environmental Laws; (ii) no underground storage tanks exist on the Property; (iii) the Property is not listed on any federal, state, or local environmental cleanup list (including DTSC Cortese List, State Water Resources Control Board GeoTracker); (iv) no environmental litigation or enforcement proceedings are pending or threatened.

Environmental Due Diligence:

• ☐ Tenant to conduct Phase I Environmental Site Assessment at Tenant's cost prior to Lease execution
• ☐ Landlord to provide existing Phase I/II reports
• ☐ Environmental condition acceptable to Tenant shall be a condition to Lease execution

CEQA (Cal. Pub. Res. Code § 21000 et seq.):

• If Tenant's proposed use requires discretionary governmental approval (CUP, variance, etc.), CEQA review may be triggered. The parties shall cooperate in obtaining CEQA clearance. Costs of CEQA compliance (environmental impact reports, mitigation measures) to be borne by: ☐ Landlord ☐ Tenant ☐ Shared.

Ongoing Environmental Obligations:

• Tenant shall not use, store, or dispose of Hazardous Materials on the Property except in compliance with all applicable Environmental Laws and in quantities customary for Tenant's permitted use.
• Tenant shall indemnify Landlord for Hazardous Materials contamination caused by Tenant's operations.
• Landlord shall indemnify Tenant for pre-existing contamination.

17. CASUALTY AND CONDEMNATION

Casualty:

• If the Building is damaged and cannot be restored within [____] days, either party may terminate.
• During restoration, Base Rent shall abate in proportion to the unusable portion.
• If Landlord elects to restore, Landlord shall restore the Building to substantially the same condition as existed before the casualty (excluding Tenant's personal property and trade fixtures).

Condemnation:

• If all or a material portion of the Property (including parking reducing spaces below [____]) is taken, either party may terminate.
• Tenant entitled to a separate award for: (i) relocation costs; (ii) loss of business/goodwill; (iii) unamortized cost of Tenant-funded improvements.

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

• Landlord shall deliver a commercially reasonable SNDA from each existing and future lender within [____] days of Lease execution.
• SNDA shall recognize Tenant's Lease and all rights thereunder (including purchase options and renewal options) upon foreclosure or deed-in-lieu, so long as Tenant is not in default.
• Landlord shall provide estoppel certificates within [____] business days of request.

19. SECURITY DEPOSIT

• Amount: $[________________________________] (equivalent to [____] months' Base Rent plus NNN charges)
• Form: ☐ Cash ☐ Letter of Credit ☐ Other: [________________________________]
• Letter of Credit Terms (if applicable): Irrevocable, standby LOC from a bank acceptable to Landlord; auto-renewing; drawable upon Tenant default or failure to renew at least [____] days before expiration
• Reduction Schedule: Deposit reduced by [____]% after Year [____] if Tenant is not in default

Cal. Civ. Code § 1950.7 Note: In commercial leases, the landlord may retain the security deposit for: (i) unpaid rent, (ii) tenant-caused damage beyond normal wear and tear, and (iii) cleaning. These protections may be contractually waived. If not waived, the statute limits retention and requires return within 30 days of termination. In a single-tenant NNN lease, parties should address whether § 1950.7 applies or is expressly waived.

20. BROKERS

• Landlord's Broker: [________________________________]
• Tenant's Broker: [________________________________]
• Commissions payable by Landlord per separate agreement.
• Each party represents no other broker has been engaged and indemnifies the other party against claims by any broker claiming through such party.

21. CONFIDENTIALITY

• The terms of this LOI and all negotiations shall be confidential except: (i) as required by law, court order, or regulatory requirement; (ii) disclosures to each party's attorneys, accountants, lenders, and bona fide business advisors who are bound by confidentiality obligations; (iii) as required for SEC filings or other public company disclosure obligations.
• This confidentiality obligation shall survive termination or expiration of this LOI for a period of [____] months.

22. BINDING PROVISIONS

The following provisions are binding and enforceable upon execution by both parties:

(a) Exclusivity: From the date hereof through [__/__/____], Landlord shall not market, negotiate, or enter into any agreement with any third party for the Property.

(b) Confidentiality: Section 21 above.

(c) Broker Indemnification: Section 20 above.

(d) Governing Law and Venue: This LOI shall be governed by the laws of the State of California. Disputes regarding the Binding Provisions shall be resolved exclusively in the state or federal courts located in [________________________________] County, California.

(e) Expenses: Each party shall bear its own costs and expenses, including attorneys' fees, unless otherwise agreed.

(f) No Binding Obligation to Negotiate: Except as expressly stated in this Section 22, this LOI does not constitute an agreement to negotiate, an agreement to agree, or any binding commitment. The parties expressly disclaim any obligation to negotiate in good faith beyond the Binding Provisions, except to the extent such disclaimer is unenforceable under applicable law.

California Practice Note (Copeland v. Baskin Robbins): Despite the express disclaimer in Section 22(f), California courts may find an implied duty to negotiate in good faith based on the totality of the parties' conduct. The disclaimer provides evidence of the parties' intent but may not be dispositive. Counsel should advise clients accordingly.

23. ADDITIONAL CALIFORNIA-SPECIFIC PROVISIONS

(a) Proposition 65 (Cal. Health & Safety Code § 25249.5 et seq.): Landlord shall comply with Proposition 65 signage requirements. The Lease shall address allocation of Proposition 65 compliance costs.

(b) Seismic Disclosure: Landlord shall disclose any Alquist-Priolo Earthquake Fault Zone designations, Seismic Hazard Zone designations, and any pending or required seismic retrofit obligations for the Building.

(c) AB 1482 Distinction: The California Tenant Protection Act of 2019 (Cal. Civ. Code § 1946.2) applies only to residential tenancies and does not apply to this commercial lease.

(d) COVID-19 Legacy Provisions: The Lease shall address any continuing effects of prior COVID-19 commercial eviction moratoria, including pending disputes, rent deferrals, or workout agreements.

(e) Local Requirements: The Lease shall comply with all applicable local ordinances, including business license/tax requirements, local green building mandates, and any commercial rent stabilization provisions (noting Cal. Civ. Code § 1954.26 generally preempts commercial rent control enacted after 1/1/1987).

24. LEASE NEGOTIATION TIMELINE

25. FORCE MAJEURE

Neither party shall be liable for delays or failures in performance of the Binding Provisions resulting from acts of God, earthquake, fire, flood, pandemic, government orders, strikes, war, terrorism, or other causes beyond the reasonable control of the affected party, provided the affected party gives prompt notice and uses commercially reasonable efforts to mitigate.

26. COUNTERPARTS AND ELECTRONIC SIGNATURES

This LOI may be executed in counterparts. Electronic signatures and PDF/DocuSign execution are valid for the Binding Provisions.

PRACTICE TIPS FOR CALIFORNIA SINGLE-TENANT COMMERCIAL LEASE LOI

1. NNN Cost Allocation: In single-tenant leases, the tenant often bears all operating costs. Carefully define what is included in NNN charges, especially structural repairs, capital expenditures, and roof/foundation obligations. Consider caps on capital expenditure pass-throughs.

2. Build-to-Suit Protections: If build-to-suit, negotiate guaranteed maximum price, detailed specifications, penalty for late delivery, right to approve change orders, and mechanics' lien protections.

3. Purchase Option Structuring: Purchase options are common in single-tenant leases. Be aware that below-market purchase options may trigger Proposition 13 reassessment issues. Structure the option to avoid inadvertent "change in ownership" treatment.

4. Proposition 13 / Tax Pass-Throughs: In NNN leases where Tenant pays 100% of property taxes, a Landlord sale and reassessment can dramatically increase Tenant's tax obligation. Negotiate a cap on tax pass-throughs triggered by voluntary Landlord sales.

5. Earthquake Insurance: California-specific risk. In NNN leases, determine who bears earthquake insurance premiums and how deductibles are handled. Consider whether earthquake coverage is required or optional.

6. Environmental Due Diligence: For industrial/warehouse properties, Phase I ESA is critical before signing the Lease. Address pre-existing contamination indemnities and DTSC/Regional Water Quality Control Board requirements.

7. CEQA Timeline Risk: If the tenant's use requires discretionary permits, CEQA review can take 6 to 18+ months. Factor this into the Lease negotiation timeline and delivery conditions.

8. CASp / ADA Compliance: In a single-tenant building, the allocation of ADA compliance costs between Landlord and Tenant is a significant negotiation point, especially for older buildings that may require substantial accessibility improvements.

9. Security Deposit / LOC: For credit tenants, negotiate a letter of credit in lieu of a cash deposit, with burn-down provisions tied to term milestones or financial performance thresholds.

10. SNDA with Purchase Option Recognition: If the Lease includes a purchase option, ensure the SNDA explicitly recognizes the purchase option and does not extinguish it upon foreclosure.

SIGNATURES

This LOI is non-binding except for the Binding Provisions in Section 22.

LANDLORD:                                    TENANT:

Entity: ______________________________      Entity: ______________________________

By: __________________________________      By: __________________________________

Name: ________________________________      Name: ________________________________

Title: _______________________________      Title: _______________________________

Date: [__/__/____]                           Date: [__/__/____]

SOURCES AND REFERENCES

• Cal. Civ. Code § 1938 -- Commercial Property Accessibility Disclosure
• Cal. Civ. Code § 1950.7 -- Commercial Security Deposits
• Copeland v. Baskin Robbins U.S.A., 96 Cal.App.4th 1251 (2002) -- LOI Enforceability
• Cal. Rev. & Tax. Code § 60 et seq. -- Proposition 13 Change in Ownership
• Cal. Pub. Res. Code § 21000 et seq. -- CEQA
• Cal. Code Regs. tit. 24, Part 11 -- CALGreen Building Standards
• Cal. Health & Safety Code § 25249.5 et seq. -- Proposition 65