Letter of Intent (LOI)

A Letter of Intent in a commercial lease context is a short document, usually two to five pages, that sets out the principal economic and structural terms the parties intend to agree on before the full lease is drafted. The LOI is not the lease — it is the term sheet that lets both sides see, on one page, whether a deal is in the same zip code before lawyers spend time on full documents.

Binding vs non-binding

A well-drafted LOI is mostly non-binding as to the deal terms — neither side is legally committed to sign the lease — but it usually contains a small number of binding provisions, identified explicitly in the LOI:

• Confidentiality — neither side can disclose the negotiation or share information learned during diligence.
• Exclusivity — the landlord agrees not to negotiate with other prospective tenants for a specified window (often 30 to 90 days), giving the tenant time to do due diligence and negotiate the lease.
• Costs — who pays for what (each side bears its own legal costs is the most common allocation; sometimes a tenant agrees to reimburse the landlord's reasonable diligence costs if the tenant walks).
• Governing law and forum, in the rare case of a dispute over the LOI itself.

Everything else — rent, term, renewals, TI allowance, free rent, build-out condition — is non-binding and subject to a "binding agreement only upon execution of a definitive lease agreement" clause. If that clause is missing or weakly drafted, the LOI can become enforceable in court, which is rarely what either party wanted.

What an office LOI typically covers

The economic and structural terms an LOI should pin down:

Premises: building, floor, suite number, rentable square footage. If the space is being measured to BOMA or a local equivalent, name it.

Term: lease commencement date, expiration date, and any rent commencement that differs from possession date.

Rent: base rent per year (or per month), expressed per square foot if customary. Include the escalation mechanism — annual fixed step, CPI-linked, lesser-of, or stepped.

Operating expenses: gross, modified gross with base year, or triple-net. If modified gross, the base year and any gross-up. If triple-net, the categories of pass-through.

Free rent: number of months and how they apply (front-loaded, distributed, abated against base rent only or against base + operating).

TI allowance: dollar amount per square foot, payment mechanism, and deadline to draw.

Renewal options: number of options, length, and rent at renewal (fair market rent, fixed step, or CPI). Notice periods.

Right of first offer / refusal on adjacent or expansion space, if any.

Letter of credit or security deposit, including the amount and any reduction schedule for performance.

Personal guarantees, including any "good guy guarantee" carve-outs.

Use clause: permitted use, exclusive rights (if retail), and any prohibited uses.

Parking, if relevant.

Conditions to lease execution: board approval, financing contingency, design approval, regulatory approval.

Why detail in the LOI saves time later

The unwritten cost of a thin LOI is the round-trips during full lease drafting. Every economic term that was "to be discussed" becomes a separate negotiation thread once the full lease arrives, and each thread has its own back-and-forth. A thorough LOI compresses that work into a single negotiation cycle.

Equally, the LOI is the moment to align on who is drafting — landlord's counsel or tenant's counsel — and which form is the starting point. A landlord's institutional form starts heavily landlord-favourable; a fresh draft from tenant's counsel starts more balanced. The choice of form materially affects how much negotiation the lease requires.

Common LOI traps

A few drafting points worth getting right:

The non-binding clause must be unambiguous. "This LOI is non-binding except for the provisions of Section 7 (Confidentiality) and Section 8 (Exclusivity)" is clear. "This LOI summarises the parties' intent" is not.

The exclusivity period should be tied to a delivery condition. "Landlord will not market the space for 60 days from execution of this LOI" is fine. "Landlord will not market the space until this LOI is countersigned by Tenant" leaves Landlord free to walk away if Tenant takes a week to counter.

TI allowance language should specify whether it is reimbursement against invoices or paid up front, and any deadline to use the allowance. Vague TI numbers in the LOI become the most-fought-over item in the full lease.

Conditions to execution should be one-sided where they should be (tenant's board approval, tenant's financing) and bilateral where they are mutual.

APAC LOI norms

Hong Kong office leases often start from a brief offer letter rather than a US-style LOI; the format is shorter, focused on rent and term, with most of the structural terms left to the full lease draft. This is workable when the landlord's form is a known industry standard, but tenants benefit from pinning down operating-expense allocation, fit-out responsibility, and renewal mechanics in writing before signing the offer.

Singapore practice resembles Hong Kong's. The "Letter of Offer" is the equivalent and is also typically short.

In Japan, the 重要事項説明書 (important matters explanation document) is a separate regulatory instrument given to tenants in some lease types — it is not an LOI but it does serve a related disclosure function. Negotiation of office leases in international-grade Tokyo towers does use US-style LOIs increasingly, especially for foreign tenants.

If you have signed leases on hand and want to compare what was agreed in the executed lease against the LOI's economic terms, LeaseTrace extracts the rent, term, options, TI, and free-rent fields from the signed PDF in the same structure you would have used to draft the LOI.