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Step Five: Letters of Intent

These little non-binding gems are how you agree and define the business terms of a lease before getting to a formal document. 

Learn how to compare, normalize and negotiate key terms like effective rent, tenant allowances, timing, concessions and more!

Get The Best Letter of Intent
 

1

Key Terms and Know How

Once you have narrowed down your top three or four options, it's time to get to the nitty gritty. Every lease and every letter of intent is different. While letters of intent are non-binding, at this point you'll start receiving letters of intent from the landlords (usually their broker or representative).  These are essentially landlord offers, and they outline the business terms of a lease. They are shorter documents that are used to build the schedules and business points of a larger lease document.

Negotiate from a point of strength. Have references, income statement/balance sheet info, and at least two years of tax returns ready. If you're new to signing leases, expect a personal credit check and a personal guarantee at lease signing.

Bs sure to also consider these:

  1. Common Area Factor -- Most offices have common area, so it will be important to know what percentage you'd be responsible for in rent.
  2. Rent Commencement -- You'll almost always pay the first month's rent when you sign a lease, but when is it applied? It shouldn't be applied until you're ready to occupy and you move in.
  3. Buildout - Is this required and what are the costs, timing, and responsibilities?  Make sure to follow the buildout checklist.

2

Four Factors For Negotiating

Consider these four factors when negotiating: 

  1. Expansion options -- This is a written-out, agreed-to and executed plan for growth attached to your lease.  
  2. Rights of First Offer/Refusal -- These go hand in hand with expansion options, but are often a little more vacuous in nature. The idea here is you have a right (one-time or ongoing) to match other potential lease offers on the space(s) around you in the building. 
  3. Good Guy Clauses -- These allow a tenant and landlord to cooperate if a tenant's business fails.
  4. Sublease & Assignment -- So, you know you're going to grow, but the landlord can't or won't give you an expansion right, or a termination option.This is where options go away and the core lease has some functionality built into it. 

 

3

Grade Your Lease

The best tool for negotiations is relevant comparable lease information. Here at Tenavox we track this through our review-based database. Compare any "quoted" terms you have to our database and our estimated range of deals done to make a better lease decision. Ultimately, your results may vary based on your business profile but it's important to be educated before engaging with a building representative.

 

What's My Grade? GO TO STEP 6
"Having lease options in a letter of intent like expansion, rights of refusal or even a termination right can change the game for Tenant.”
— Roger M. (Leasing Agent, Austin, TX)

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