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 assembles the items in 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 every term included in the formal lease, but it does create an outline of the deal. The letter of intent generally includes negotiating points 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. The LOI should also include options to extend and a right of first refusal offer.
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 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 should retain counsel before signing the letter of intent.
New York Court rulings on the enforceability of term sheets are case-specific—only a limited number of matters where the entire LOI binds the parties.
Enforcement of Commercial Lease Term Sheets
Courts can parse specific provisions and find them enforceable 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. This unenforceability is also based on what a reasonable person would have intended and believed. This can be found in the language in the LOI itself and the parties’ subsequent reliance on it. The law does not always provide certainty, though. Well-drafted term sheets include an explicit disclaimer stating that they are not binding unless expressly set forth 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. One is a moratorium on listing the premises. Another is a representation that the parties will engage in good-faith negotiations. A typical example of an LOI provision that is frequently binding is a confidentiality provision. The proposed rent and the tenant’s financials will stay confidential even if the deal falls through.
The Commercial Lease Term Sheet or LOI is valuable for streamlining lease negotiations. It is best to retain experienced Lawyers to draft and negotiate it. Otherwise, an LOI may lock you into terms without fully understanding its long-term ramifications.