Whether or not you are a commercial landlord or a commercial tenant, the best lease you will ever execute is the one you never need to refer to again. When landlords and tenants have sufficient and meaningful upfront discussions in order to clearly delineate their rights and responsibilities and when those discussions are then translated into a well-drafted document the outcome for both parties is usually a much more positive long-term relationship. However, in the absence of these discussions and a corresponding document, both landlords and tenants are likely to find themselves treading a rocky road despite the best of intentions.

Surprisingly, this “well-drafted document” and the key to a better landlord/tenant relationship is not the commercial lease (although a well-drafted commercial lease is essential, of course). The key to a better relationship between the respective parties starts with a friendly but thorough discussion of the salient business terms, which are then memorialized in a non-binding document known as a Letter of Intent (LOI). An LOI is a simple but detailed non-binding letter between the parties that outlines the material terms, which will ultimately be written into the lease. This letter is drafted before the commercial lease, and it is often created with the assistance of a real estate broker. All too often landlords and tenants have polar opposite ideas as to the terms of the deal, so the LOI typically clarifies information like the legal name and address of both landlord and tenant, the proposed term of the lease, the monthly rent and annual increases, the legal use of the demised premises, the rights and responsibilities with regard to alterations to the demised premises, whether or not there are any extension periods, details about the security deposit, and any pertinent insurance requirements. Additional but equally important terms may include whether or not the lease is to be guaranteed by any individual or individuals, any penalties for the late payment of rent, responsibilities as to snow removal, maintenance of air conditioning and heat, parking limitations, roof maintenance, disposal of garbage, and the location of garbage compactors.

The LOI should be provided to both the landlord’s and tenant’s respective attorneys prior to the negotiation and drafting of the lease. This will ensure that neither landlords nor tenants will find themselves in a protracted and unnecessarily expensive lease negotiation. Translation: a well-drafted LOI will reduce your legal fees and save you money! More importantly, it will facilitate a strong long-term relationship between the parties because the process of creating an LOI upfront allows the parties involved to get to know each other on a more personal basis.

Angiuli & Gentile, LLP, Attorneys at Law
1493 Hylan Boulevard / / 718.816.0005