Glossary / Lease terms and deal stages
Also known as: LOI, term sheet, proposal
A letter of intent (LOI) is a short document in which a landlord and tenant set out the main business terms of a proposed lease, such as rent, term, and allowances, before the full lease is drafted. It is usually non-binding except for specific clauses.
Wikipedia defines an LOI as "a document outlining the understanding between two or more parties which they intend to formalize in a legally binding agreement," and notes that "a tenant and landlord may sign a letter of intent prior to signing a lease agreement to stipulate rental rates and the terms of the future tenancy."
Materials from an ICSC shopping center law conference list the items leasing LOIs commonly cover: rent, additional rent, CAM charges, lease term, delivery dates, construction allowances, renewal options, and the scope of landlord and tenant work. Bean, Kinney & Korman notes that LOIs "are typically not binding," though certain provisions, such as confidentiality or a covenant to negotiate in good faith, can be. Whether an LOI binds the parties depends on its wording and state law.
A signed LOI is progress, not payment. Most commission agreements tie the fee to a signed lease or a later event, not to an LOI. The Oklahoma Real Estate Commission's commercial listing agreement form, for example, says a broker "earns no compensation merely by producing a prospect, an offer," and ties compensation to an executed lease and rent commencement.
The LOI still shapes how much you earn. Terms set in it, such as base rent, lease length, free rent, and the Tenant improvement allowance (TI), often carry into the lease and into the commission calculation. Bean, Kinney & Korman warns that "it is very hard to negotiate away from an agreed-upon business or legal point" in a signed LOI. The time from LOI to Lease execution is also when deals most often stall.
Treat the LOI as the moment to confirm your commission terms in writing, since the landlord has agreed to a deal but has not yet signed anything that triggers payment.
