Commercial Real Estate LOI (letter of intent)

Commercial Real Estate, Real Estate, Uncategorized

The process for leasing or purchasing commercial real estate space usually starts with the interviewing of adequate representation (commercial real estate brokers), followed by drafting a list of requirements for the new space, and finally a search of available spaces. Once one or two properties are selected as possibilities, negotiations begin on a “non-binding” level through the use of a Letter of Intent (LOI). The LOI is a precursor to a lease or sales contract and is usually completed by the chosen commercial real estate broker.

The reasons for using a LOI are multiple, with the most important being that it serves as a guideline for the attorney to draft and finalize necessary leases or contracts. Unlike residential contracts for homes, commercial leases and contracts vary each transaction. There is no set template to follow. Therefore it is necessary for these documents to be orchestrated by a knowledgeable attorney, as it is out of the realm of a broker’s duty and is essentially illegal. However, a broker’s role is crucial in that they outline the negotiated points the attorney will draft the contract on. This action saves legal fees as the attorney has less to negotiate through the contract.
Items that brokers include in an LOI are:

1. Names of the parties in the transaction including the buyer/tenant and seller/landlord.
2. The address of the sought after space.
3. Size of the sought after space in both rentable and usable square feet (if necessary).
4. Offer terms.
5. Signature and date lines.

You may be thinking to yourself, what are the offer terms. Great question…as this is the most fluctuating part of LOIs and contracts alike. Our next blog will cover a variety of items that can be negotiated through an LOI.

Authored by O’Donnell Commercial Real Estate

Re-Published by Paul Martis-Commercial Broker/Realtor





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