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Letters of Intent to Lease: Valuable for Landlords and Tenants

By Jay A. Gitles

Landlords and tenants occasionally ask whether they should bother to negotiate and execute a letter of intent to lease. Many wonder whether it might be more efficient to launch right into negotiating the lease itself. The investment in negotiating a letter of intent to lease will almost always pay quick dividends for landlords and tenants. The dividends may be in the form of an early discovery of a lack of agreement on an important issue that will allow the parties either to resolve it quickly or decide to terminate further negotiations and part ways. The more details sorted out during the letter of intent phase, the greater the likelihood of a smoother and successful consummation of the lease. Finding the proper balance of detail to include at the letter of intent phase is often a function of the nature and size of the transaction and the sophistication and leverage of the parties involved. This article is intended to help landlords and tenants consider what they may want to include in their letters of intent to lease.

Parties. Who are the landlord and tenant? The answer is not always obvious. The tenant will want to make sure that the landlord includes the fee simple owner of the underlying real estate to be leased by the tenant and, if the landlord is a land trust (which is common in some jurisdictions, such as Illinois), the tenant may consider requiring that the beneficiaries of the landlord's land trust join as the landlord. Similarly, the landlord will want to identify who the tenant is and secure financial information from it in order to determine what type of security deposit may be warranted and whether any lease guaranties will be necessary and from whom. The landlord should also secure financial information from any such prospective guarantors.

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