Understanding an LOI (Letter of Intent) in office, retail & industrial leasing - 1024 by 400

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Leasing an office, a warehouse, or any commercial real estate is no walk in the park. After finding the right property that you want to rent, the first step is writing a non-binding document known as the Letter of Intent.

What is a Letter of Intent?

An LOI or Letter of Intent is used as a preliminary agreement between a landlord or tenant. It is a document that includes the important items that both parties can evaluate before they decide to proceed with any transaction or contract. Such information found in the Letter of Intent includes the length of the lease, lease term, guarantees, and annual increases (if any). 

LOIs are invaluable as they can avoid any misunderstandings with regard to the negotiations and stipulate some formalities. A signed LOI is used to secure the efforts in securing the deal, indicating that both parties have come to an agreement towards the key terms.

Important parts of the LOI

An LOI must cover the parties involved, namely the name of the lessee and lessor, the address and contact details of both parties, and other authorized parties involved such as the real estate broker. They should cover the property details like the full address, descriptions of the boundaries, fixtures, attachments and other similar details. 

The offer must be clearly stated and must include the following: price, deposit amount, mode and terms of payment, period of due diligence, and the deadline for the lessee to agree to the terms. A good LOI must also include disclaimers to avoid any conflicts and uncertainty—there should be clauses to limit the application of certain terms in the contract and state the contract’s non-legally binding nature unless certain sections should be deemed legally binding.

LOI for office leasing

For office leasing, the LOI should include the utmost due diligence when it comes to details. It should include the particulars of the specific office space for rent to let the landlord know which space the tenant is interested in, in case the landlord owns multiple properties with the same characteristics. The leased premises should also state the assumptions about the shared common areas like entrances, parking, and the like.

LOI for commercial leasing

For commercial leasing, on the other hand, the LOI should include descriptions of the lessee’s company from the business model, to the business activities, products and services sold, and the target customers. Descriptions of the lessee’s existing space would also be useful. This will be great in providing further information and insight as to why the lessee would need to rent such a space. 

The LOI should also include an outline of the employees who will be on-site, any specific equipment and machinery that need to be in the premises. Part of this is making sure the office or operation hours will be included, to let the landlord know if there would be any conflict with the surrounding neighbors.

Drafting your LOI

Knowing all of this, you can now draft your own LOI for your real estate decisions. Get help from real estate professionals in Santos Knight Frank—a renowned real estate services firm that offers services such as occupier services & commercial agency, investment & capital marketsresidential & sales leasing, property marketing, research & consultancy, valuation & appraisal, project management, asset management,  property management, facilities management, technical services & engineering solutions. Learn more about Santos Knight Frank through the website https://santosknightfrank.com/

If you want to know more about leasing, you can also read about our Office Leasing Checklist.

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About Santos Knight Frank

Santos Knight Frank provides global real estate services. Since the company first opened its doors in 1994, it has become the Philippines’ first and largest fully integrated real estate services provider, with clients that include multinational corporations and institutional investors, as well as occupiers, owners and developers of real estate locally and across the globe.

The company’s partner, Knight Frank, is the largest independent global real estate consultancy. Founded in 1896 and headquartered in London, Knight Frank operates in more than 523 offices in 60 countries across the globe, including the strategically important partnership with Newmark Knight Frank in the U.S. (with Newmark Cornish & Carey in the West Coast).