A Commercial Lease Term Sheet (or Letter of Intent) is commonly used when negotiating a commercial lease. They itemize the specific terms and conditions of a proposed deal. LOIs are also known as “term sheets”. The broker, seller’s attorney or landlord’s lawyer generally drafts the term sheet. It provides a starting point for lease negotiations and a guide for the landlord’s attorney when drafting the lease. This document is not comprehensive and often not a final agreement on each and every term that will be included in the formal lease, but it does create an outline of the deal. The letter of intent generally includes terms and information relating to the identity of the parties, a description of the premises, lease term, rent and tax escalation costs, security deposit, permitted use, build-out free rent period, and assignment provisions. Options to extend, right of first refusal offers should be included in it as well.
We draft a commercial lease term sheet to help clarify the terms of the deal, and determine early in the process whether there are any absolute deal breakers. Since the Landlord’s attorney is the one drafting the lease LOI, the tenant should include more specifics, rather than use negotiating chips later to revise restrictive terms. That is why prospective tenants would be wise to retain counsel prior to negotiating the letter of intent.
New York Court rulings on the enforceability of term sheets are case-specific. There are a limited number of matters where the parties are bound by the entire LOI, while in other cases it is deemed to be not binding. Courts can parse out certain provisions and find them binding while holding that other clauses are not. Generally speaking, the Courts look at specific language as to whether the parties intended the LOI to be binding or what a reasonable person would have intended and believed. This can be based not only on the language in the LOI itself, but on the parties’ subsequent reliance on it. The law does not always provide certainty, though. Well drafted term sheets include an explicit disclaimer stating that unless expressly set forth therein, the term sheet is not binding until the landlord countersigns and delivers a lease to the tenant.
There are some provisions of the LOI that a party will want to be binding, like a moratorium on listing the premises or a representation that the parties will engage in good faith negotiations. A common example of a LOI provision that is generally binding is a confidentiality provision. This provision provides that in the event the deal falls through, the proposed rent and tenant’s financials will be kept confidential.
The Commercial Lease Term Sheet or Letter of Intent is a good tool for streamlining lease negotiations and it is best to retain experienced Lawyers to draft and negotiate it. Otherwise, you may be locked in to terms without fully understanding the long term ramifications of them.