What Is A Commercial Lease Letter of Intent (LOI) | Commercial Real Estate | Charlotte NC

WHAT IS A COMMERCIAL LEASE LETTER OF INTENT (LOI)

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A LETTER OF INTENT (LOI)

A Letter of Intent (LOI) is a simplified, one or two-page document commonly used to make a purchase or lease offer on commercial property, without all the legal terms and clauses associated with a more extensive sales or lease contract. An LOI acts like a bridge between your intent to lease or buy a property and a legally executed lease contract.

PURPOSE

OFTEN, BUT NOT ALWAYS, A LETTER OF INTENT DOES NOT AIM TO CREATE A BINDING AGREEMENT BETWEEN THE PARTIES. THE USUAL PURPOSE OF THIS LETTER IS TO SET FORTH THE PRIMARY TERMS AND CONDITIONS UPON WHICH TO EXECUTE A FORMAL AGREEMENT, WHERE ALL THE OTHER TERMS AND CONDITIONS SHALL BE NEGOTIATED. UNDERSTANDING HOW THIS DOCUMENT CAN AFFECT THE RIGHTS AND OBLIGATIONS OF THE PARTIES IS IMPORTANT, PARTICULARLY IF THE TRANSACTION FALLS THROUGH.

NEGOCIATION

Letters of intent allow both sides to a negotiation to move ahead cautiously without unconditionally binding to each other. Step by step, the parties can conduct the necessary due diligence and agree on all the terms of their relationship before locking into a binding agreement to consummate the transaction. LOIs also help flush out potential deal-breaking issues early on in the negotiation process. A better understanding of the risk involved allows investors to make more informed decisions on whether or not to use such a document in their best interest.

ADVANTAGES AND USES Letters of Intent are useful in various segments of the economy. In the leasing context, LOIs may be beneficial to both landlords and tenants depending on the prevailing market conditions. An LOI may help a tenant quickly secure a space in a tight rental market until a formal lease can be drafted and fully negotiated. In a tenant favorable rental market, a landlord can use an LOI to secure a tenant’s focus and to help the landlord obtain financing for new construction by satisfying a lender’s pre-leasing requirements.

In a market of rising prices, neither a seller nor a landlord could gain an advantage by binding to a price term early in the negotiations by executing a letter of intent. In such a situation, the seller or landlord could potentially end up executing a final lease contract that contains below-market price terms.

CALL YOUR TRUSTED EXPERT ON COMMERCIAL REAL ESTATE IN CHARLOTTE, NC.

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