The letter of intent — commonly called an LOI — is one of the most consequential documents in any commercial real estate transaction. It is also one of the least understood by tenants approaching a commercial lease for the first time.
Most tenants receive an LOI from a landlord or leasing agent and treat it as a formality — a summary of the deal before the "real" negotiation in the lease. This is a serious mistake. The LOI is where the economics of the deal are established, and those economics are extremely difficult to reopen once an LOI is signed.
What Is an LOI in Commercial Real Estate?
A letter of intent is a short-form document that outlines the agreed business terms of a proposed commercial lease before a formal lease is drafted. It is typically 2–5 pages and covers the key economic and structural terms of the deal: rent, lease term, TI allowance, free rent, renewal options, and other major provisions.
An LOI is typically non-binding — meaning neither party is legally obligated to complete the lease simply because an LOI has been signed. However, "non-binding" does not mean "without consequence." A signed LOI signals a meeting of the minds, establishes baseline expectations for both parties, and makes it politically and practically difficult to reopen terms in the formal lease negotiation without damaging the deal.
The LOI anchoring effect: Once an LOI is signed, the formal lease negotiation is almost always conducted with the LOI terms as the starting point. Items not addressed in the LOI are typically resolved in the landlord's favor — because the tenant's attorney is reviewing language, not re-litigating economics. Get the LOI right.
Who Typically Drafts the LOI?
In most South Florida commercial transactions, the LOI is drafted by the landlord's leasing broker or attorney. This means the initial document reflects the landlord's preferred deal structure — and it is the tenant's responsibility (or their representative's) to identify what is missing, what is inadequate, and what needs to be changed before signing.
In deals where a tenant rep is involved, the tenant rep either drafts the tenant's own LOI from scratch or provides a detailed counter to the landlord's LOI. A tenant-drafted LOI is often more thorough — it includes every term the tenant cares about, not just the terms the landlord was comfortable putting on paper.
What a Commercial LOI Should Cover
A well-drafted tenant LOI in South Florida should address all of the following:
Premises
The specific space being leased: address, suite number, rentable square footage, and any storage or parking included. Confirm how rentable SF is calculated — some buildings add a "load factor" that increases the rentable figure above actual usable square footage.
Lease Commencement and Term
The start date (or trigger event, such as delivery of the space), the lease expiration date, and total lease term in months. Also specify whether the term starts from commencement or from the rent commencement date (after any free rent period).
Base Rent
Annual base rent per square foot, the escalation schedule (typically 3% per year in South Florida), and any initial period at a different rate. Every year of the lease term should be spelled out so there is no ambiguity.
Free Rent
The number of months of free base rent, when they apply (beginning of term is standard), and whether operating expenses are also abated during the free rent period. Some landlords will offer free base rent but continue charging NNN during the abatement — a distinction that matters.
Tenant Improvement Allowance
Total TI allowance in dollars per square foot, how it is disbursed (reimbursement vs. landlord-managed construction), the deadline for disbursement, and what happens to unused TI at the end of the allowance period.
Lease Type and Operating Expenses
Whether the lease is NNN, modified gross, or full gross — and if NNN, the estimated current operating expense load so the tenant can model total occupancy cost. Include any agreed CAM caps or exclusions.
Renewal Options
Number of options, option period length, notice requirements, and the rent formula for each option period. "Fair market value" alone is insufficient — the LOI should define how FMV is determined if the parties disagree (e.g., appraisal process).
Personal Guaranty
Whether a personal guaranty is required, the scope of the guaranty (full term vs. capped), and any burn-down provisions. Guaranty terms agreed in the LOI are difficult to improve in lease negotiation.
Exclusivity
For retail tenants especially, the LOI should include agreed exclusivity language — defining the protected use category and the scope of the restriction (entire shopping center vs. specific buildings).
Permitted Use
A specific, detailed description of the permitted use — broad enough to accommodate your business operations and any reasonable expansion of them, but specific enough to support your exclusivity clause.
Contingencies
Any conditions that must be satisfied before the LOI becomes a binding obligation to lease — most commonly: receipt of an acceptable lease form, completion of due diligence, and board or ownership approval where applicable.
Exclusivity / No-Shop Period
Once an LOI is signed, many landlords request an exclusivity period during which they stop marketing the space. This is reasonable — but it should be short (30–45 days) and conditional on the landlord's good-faith negotiation of the lease. Avoid open-ended exclusivity that lets a landlord tie up your search indefinitely.
What Tenants Commonly Miss in LOI Negotiation
The most common LOI mistakes I see with unrepresented South Florida tenants:
- Accepting the landlord's square footage calculation without verification. Rentable square footage in some buildings can be 10–15% higher than actual usable space due to load factors. Request the measurement methodology.
- Not specifying rent commencement vs. lease commencement. If the lease says "term begins on the commencement date" but free rent is not clearly defined, you may end up paying rent before the space is ready.
- Leaving TI disbursement mechanics undefined. An LOI that says "$45/SF TI allowance" without specifying disbursement triggers, deadline, and unused allowance treatment creates disputes during build-out.
- Agreeing to full guaranty in the LOI. Once the LOI is signed with a full personal guaranty provision, it is very hard to reduce in lease negotiation. This term must be negotiated at the LOI stage.
- Signing before touring alternatives. The LOI is executed after the competitive process is complete — not as an intermediate step that puts you on the hook while you "keep looking."
The LOI as a Negotiating Tool
The best tenant LOIs are not just reactive documents — they are negotiating tools. A well-drafted tenant LOI that comes in from a represented tenant signals to the landlord that this tenant knows the market, has covered every term, and will hold the landlord accountable through lease execution.
It also gives the tenant's attorney a clean brief: every major business term is already agreed, and the lease negotiation focuses on legal protections rather than reopening economics. Deals close faster, with fewer surprises, and with better final terms.
If you are approaching an LOI for any commercial space in South Florida — or if a landlord has sent you one and you are not sure what you are looking at — a free consultation will get you oriented before you sign anything.
