My Standard Letter of Intent (LOI) Template
The key deal terms you should care about when negotiating an LOI
When I hear “real estate deal," I immediately picture a word doc. More specifically, I picture a Letter of Intent (LOI), the document that captures the most important aspects of what will eventually comprise a more comprehensive and binding document: the retail lease.
At least for me, I don’t consider an opportunity “real” until I have a signed LOI. Even though they’re non-binding — and in many cases non-exclusive — it’s the first serious indication that (a) the deal is real and (b) you’ve reached mutually agreeable deal terms with the other party.
While LOIs are not a universally standard document, there’s no right or wrong template. The important thing is to use the document as a means of identifying and aligning on the non-starters ahead of getting lawyers involved and racking up legal fees on either side.
Quick aside: While there’s no right or wrong template, you need to be mindful of first impressions. A typical LOI should not be pages and pages of terms: I’ve seen anywhere from 1 page to 10 page LOIs (including exhibits), but never more than that. If a landlord has two equal credit tenants who are asking for the same deal economics, they’re going to prioritize the one they can negotiate fastest — which is inevitably correlated with the shorter, simpler LOI. Sending a beefy LOI could signal that you might be a difficult tenant.
Another important aspect of LOIs to keep in mind is the person to whom you will be sending the document. Real estate is very relationship driven, and knowing who’s on the other end of the table is important as you come out of the gates with your initial proposal. Ask for a rent that’s too low and it can be insulting (the rent is basically an indication of the location’s value), but offer a rent that’s too high and you’re likely overpaying.
Additionally, certain types of store formats (street vs mall) are often accompanied by different “standard” deal terms. For example, you might want to (and are sometimes able to) ask for scaffolding protection if you’re considering a store in Manhattan. Construction is constant, and if scaffolding suddenly goes up and blocks your store’s visibility, you might take a huge hit to sales. (This has become harder to get in a lease).
While this is certainly not a fully exhaustive or prescriptive list of key deal terms, it’s the basis that I usually start with and add to. Note that if you’re negotiating a short term lease (a license or popup agreement), you will likely have very little negotiating power — if any. Landlords and (experienced) operators generally don’t find short term leases (less than 12 months) worth spending a ton of time on, and landlords generally don’t offer much flexibility outside of the rent economics (if that).
Below I’ve copy and pasted a template that I’ve used often in the past, and added some commentary as inserted block quotes. Everything in brackets is meant to be updated for each deal. Keep a few things in mind:
This is just my opinion of key deal terms; they may not all be important to YOU, and I may even be missing some deal terms that you DO find important. Use this as a starting point, and edit/build off of it accordingly.
Everyone’s starting offer and fallback stance can and should differ, depending on what you find important. For example, I always start by saying “There shall be no landlord relocation right,” but in reality I could be okay with it depending on the circumstances (ie the fallback position; as an example, I could get comfortable with being forced to relocate if the landlord pays for it all, and I have some assurance that the new space will be similar size, rent, and quality).
Your LOI should evolve over time; what’s important to a tenant will vary across tenants, and over time as you grow the portfolio. Some of this will be because your brand’s needs change over time, and some of this will be because the types of landlords you’re negotiating are changing (eg across markets, submarkets, types of real estate, etc.).
You can send this template LOI to your broker(s) to populate for each deal. Beyond the initial template, I rarely manage the doc itself. If a broker is unwilling or incapable of drafting and doing the redlines, find a different one (I have recommendations if you need!).
Okay now to the good stuff: let’s dive in (and at the bottom you’ll also find a link to my standard LOI template in Google Docs).
Letter of Intent: Retail Space
[Date]
[Tenant representative]
[Email]
[Mailing Address]
Re: [Location address]
Always confirm what they say vs what you find on Google Maps — they don’t always match. Sometimes the mailing address is different from the site plan address which can also be different from the utilities address. It’s a frustrating, albeit seemingly simple, data point to nail down in some cases.
Dear [Landlord representative],
[Brand name] (“Tenant”) is willing to consider leasing space in the above noted location based on the following terms and conditions that shall be included within a mutually acceptable lease to be executed by Landlord and Tenant. Once both parties agree to the deal points outlined in this Letter of Intent, Tenant will present internally for final approval.
Address: [Location address]
Premises: Ground Floor: [square feet]
Upper/Lower Level (if applicable): [square feet]
Landlord: [Landlord name], represented by [landlord representative name, often the broker or leasing rep] whose email is: [email]
Tenant: [Tenant legal entity that will be signing the lease]
Trade Name: [Tenant’s brand or d.b.a name]. Tenant may change such trade name to any other trade name(s) from time to time used by Tenant, its parent(s), affiliates or subsidiaries.
This is important, especially if you manage multiple brands under a parent company, or if your company’s legal entity name differs from the name of your brand. Let’s say your parent company is signing the leases…the landlord will want to know exactly which brand is going in there, and will want it in writing so they don’t get bait and switched.
Use: Any lawful retail use.
Few landlords go for this as-is. This is important for two reasons: (1) if a landlord is leasing a space to a menswear brand because it complements the womenswear brands in the same center, they don’t want to be surprised if one day your company switches to selling womenswear; and (2) some tenants have an Exclusive Use provision where the landlord has agreed NOT to lease to anyone else that sells the same products or services. This provision gives them visibility into whether they’re risking breaching other tenants’ Exclusive Uses.
Exclusive Use: Landlord will not sell or provide services or permit any party to provide the following Services in the Shopping Center: [insert list of products/services you currently offer].
Any existing tenant as of the date of this agreement whose lease allows it to sell any of the listed products/services will not be subject to Tenant’s exclusive. Landlord agrees that, to the extent that it has reasonable control over such tenant’s use and changes in use, it will exercise such control to enforce Tenant’s exclusive.
In the event of a violation of Tenant’s exclusive use, all rent due under the Lease shall be reduced by [fifty percent (50%)], until the violation has been cured and the competing tenant(s) at the Property cease the sale of any of the products protected by Tenant’s exclusive use described above. In the event that the violation continues for more than 90 days, Tenant shall have the right to terminate the Lease.
Depending on your retail strategy, you may want to limit the future competition in a particular center that you’re entering (so note that this is usually not something you can ask of a street destination landlord who doesn’t control the area). Some landlords are okay with this, others want to maintain future flexibility for other tenants who may offer similar products/services. A decent fallback position here would be to allow other retailers to sell the same products/services as you, but with no more than [20%] of their sales coming from the same categories as yours.
Lease Term: [Ten (10)] years plus a partial year expiring on January 31 following the [tenth (10th)] anniversary of the Commencement Date. In addition, Tenant shall have [two (2), five (5)] year renewal option(s).
Traditional leases, are usually 10 years. Especially if you’re also asking for Tenant Allowance financing, landlords expect you to stay long enough to pay it back. Options are great, but I usually try to renegotiate a deal when the lease expires no matter what, so truthfully don’t find these as important unless I believe the market rents are going to explode. In any case, it’s a problem for 10 years down the road…so it’s not a priority.
Delivery Requirements: Delivery of possession of the Premises will not be deemed to have occurred until all of the following conditions have been met or waived by written notice from Tenant to Landlord:
(a) Landlord’s work complete;
This is really only relevant if you’re expecting a landlord to perform some work for you (which is also rare for popups or short term leases). If you are, then this provision is usually accompanied by a Work Letter exhibit.
(b) physical delivery of the Premises in a broom clean condition, free of all violations and the personal property and signage of any previous occupants.
Delivery Date: [Date] (The “Anticipated Delivery Date”).
This is usually non-binding, and is used as a means of aligning on general timing expectations. If there is an existing tenant in the space, it’s advisable to include a penalty to the landlord if they deliver the space late (which can result from an existing tenant refusing to vacate).
Rent Commencement Date: The earlier of opening or [one hundred twenty (180)] days after the Delivery Requirements have been met.
This is intended to give you a “buildout period,” which is the time where you’ll be prepping the space. For popups, I’d recommend starting with 90 days, settling for 60, and really needing 30. For full buildouts, I’d recommend starting with 180, settling for 120, and really needing 90. The extra 30 days in both cases are for cushion, which you may need more often than you think.
Base Minimum Rent: [insert/type out rent schedule showing (1) the per square foot rent, (2) the total rent, and (3) the year over year growth rate for Lease Years 1-10 (or however many years your lease will be, including options)]
Real Estate Taxes: Tenant shall pay its pro rata share of increases over a base year of [2023]. Tenant’s pro-rata share is [%]. Tenant’s share of real estate taxes is estimated to be $[annual expense] per year.
I usually leave this empty and ask the landlord to provide their estimates.
Common Area Maintenance: Tenant shall pay its pro rata share, which is estimated to be $[ ] per square foot. Increases shall not exceed [3]% annually.
I usually leave this empty and ask the landlord to provide their estimates. Always try to get a “not to exceed” limit, as well as an escalation cap.
Other Rent: There shall be no other rent charges, or administrative or management fees on the above rent charges.
You can also take a less absolute position to say that these charges are included in the CAM and RET estimates. Sometimes these charges are non negotiable, but the point of this is really just to force visibility into these charges before the lease (which brokers and landlords commonly omit until then)
Audit Right: Tenant shall have the right to audit Landlord’s calculations of real estate taxes and all other charges.
Realistically, your team likely won’t have the time to audit a landlord’s RET and CAM charges. But I always like to ask for it, so when I hire a lease administrator later they can start digging in.
Guarantor: None.
You’ll almost always have to give a guarantor when you’re just beginning your real estate footprint, but I like to start with one. Something to keep in mind: the legal entity signing the lease and the entity operating the store don’t need to be the same, but the landlord will usually want the highest level entity possible. You may need to provide an org chart to help clarify if there is a difference. Additionally, depending on the strength of the guarantor, you may be able to eliminate the security deposit requirement.
Security Deposit: None.
Similar to the Guarantor provision, I start with “none” but fully expect to shell out 1-2 months of gross rent, depending on the strength of the signing entity’s financials. Sometimes you can negotiate a “burndown,” meaning that the landlord returns the deposit once you achieve some criteria — usually a profitability target, or a number of years of operations.
Chargebacks: There shall be no chargebacks to Tenant for the cost of any item included in Landlord’s Work and/or performed prior to delivery of the Premises to Tenant.
Opening Co-Tenancy: Tenant shall not be required to take possession of the Premises or begin construction unless (a) [X] of the [Y] Named Tenants, (b) tenants occupying ninety percent [(90%)] or more of the GLA of the project (excluding Anchor Tenants), and (c) all of the Anchor Tenants have signed leases and are scheduled to open on or before Tenant’s opening date (the “Possession Co-Tenancy Requirement”). In addition, Tenant shall not be required to initially open for business in the Premises until the tenants required for the Possession Co-Tenancy Requirement are actually open (the “Opening Co-Tenancy Requirement”).
Landlord shall verify the foregoing in writing and provide a leasing plan showing the names, square foot areas and opening dates of each such Anchor Tenant, Named Tenant, and all other tenants no later than [forty-five (45)] days prior to the date Tenant is scheduled to take possession of the Premises. If Tenant elects to take possession of the Premises and open for business prior to the fulfillment of the Opening Co-Tenancy Requirement, then Tenant shall pay the lesser of (i) Minimum Rent and all Other Charges or (ii) five percent (5%) of Tenant’s gross sales. In the event the Opening Co-Tenancy Requirement is not satisfied within [six (6)] months of the execution date of the lease, then Tenant shall have the right to terminate the lease by written notice to Landlord and neither party shall have any further liability to the other, provided that Landlord shall reimburse Tenant for all actual costs and expenses incurred by Tenant in connection with the lease, including, but not limited to, the preparation and/or review of plans and specifications and any legal and/or other professional fees.
"Anchor Tenants" refers to: [Anchor Tenant names].
"Named Tenants" refers to [Tenant names].
This is a rare provision to need. It’s really intended for new developments, where the center is not yet open. It can suck to be the first and only tenant operating as a result of the landlord not getting others in as quickly as promised, so this provision gives you some rent relief if that happens.
Operating Co-Tenancy: Landlord shall, within thirty (30) days of written notice from Tenant, verify in writing the names and square footage occupied by each of the Anchor Tenants and that of all other tenants open and operating in the project.
The “Operating Co-Tenancy Requirement” shall be considered satisfied when (a) all of the Anchor Tenants and (b) tenants representing at least ninety percent (90%) of the GLA excluding Anchor Tenants (the “Smaller Tenants”), are open and operating.
If at any time during the term of the lease the Operating Co-Tenancy Requirement is not satisfied, Tenant shall immediately have the right to (1) continue to operate from the Premises during the store hours required under the lease AND pay the lesser of (i) the Minimum Rent, Percentage Rent and Other Charges (“Total Rent”), and (ii) five percent (5%) of Tenant’s gross sales (“Alternate Rent”), OR (2) either go dark or reduce its hours from the hours it would normally be required to operate under the lease, in which case Tenant shall continue to pay Total Rent; provided, however Tenant shall be entitled to pay Alternate Rent as soon as it reverts back to operating during the required store hours under the lease.
In the event the Operating Co-Tenancy Requirement is not met for a period of six (6) continuous months as to Smaller Tenants and one (1) continuous year as to Major Tenants, Tenant shall, in addition to the rights described above, have the right to terminate the lease upon ninety (90) days written notice to the Landlord. There shall be no sunset on Tenant’s right to pay Alternate Rent.
This is a commonly negotiated protection when you’re entering a mall, lifestyle center, or generally any non-street location where the landlord effectively controls the tenancy of the general area. These destinations’ rents are only as justifiable as their traffic is high, so when the occupancy rate drops, this gives you the trigger to drop your rent too.
Early (Sales) Termination Right: If Tenant's net sales do not exceed $[NUMBER] during the [NUMBER] through [NUMBER] full calendar months, Tenant shall have the option to terminate the lease by giving Landlord sixty (60) days prior written notice on or before the ninetieth (90th) day following the end of the [NUMBER] month. If Tenant elects to exercise such Sales Termination Right, Tenant will not be required to pay back any unamortized Tenant Allowance or free rent.
This usually won’t work for short term deals, but in a 10 year deal — especially with large mall operators — you can usually negotiate some form of early kick out right. Generally this will also come with a penalty (eg 50% of the unamortized Tenant Allowance, if that was given).
Signage: Tenant shall be permitted the maximum signage allowable by code on the front and sides of the Premises pursuant to the design to be attached to the lease.
This stance may seem obvious, but is really an attempt at forcing a conversation around any unique signage requirements.
Scaffolding Protection: Landlord shall not block access to or visibility of the Premises with scaffolding or any other means, and shall not construct or place, or allow the construction or placement of, any permanent or temporary kiosk, cart, automated teller machine, telephones or any other obstruction on the sidewalk in front of the Premises (the “Protected Area”). If Landlord violates the foregoing and such violation continues for a period of three (3) days following written notice from Tenant to Landlord, Tenant shall be entitled to an abatement of [30%] Minimum Rent, Percentage Rent and Other Charges for each day such violation continues.
This provision is primarily relevant for NYC, where construction is literally constant. At some point you will probably have scaffolding on your building, obstructing visibility, traffic, and overall a detriment to your sales. While a landlord may not always have 100% control over whether scaffolding may have to go up, you shouldn’t have to bear the entire burden (ie your lost sales, while they continue to get 100% of the rent).
Protected Area: Landlord shall not construct or place, or allow the construction or placement of any permanent or temporary kiosk, cart, automated teller machine, telephones or any other obstruction within an area extending fifteen (15) feet from each of the side demising lines of Tenant’s Premises and across the width of the project (the “Protected Area”). Landlord shall not block access or visibility to the Premises or make any changes or alterations whatsoever to the Protected Area. If Landlord violates the foregoing and such violation continues for a period of three (3) days following written notice from Tenant to Landlord, Tenant shall be entitled to an abatement of Minimum Rent, Percentage Rent and Other Charges for each day such violation continues.
This is similar to the Scaffolding provision, but with an expanded scope to address situations such as malls putting those annoying kiosks in front of your store.
Tenant Allowance: $[Number]
[Seventy-five percent (75%)] to be delivered to Tenant ten (10) business days before the possession date.
[Fifteen percent (15%)] to be delivered to Tenant upon opening.
[Ten percent (10%)] to be delivered to Tenant within thirty (30) days after Tenant has furnished Landlord with mechanic’s lien waivers from the Tenant’s general contractor.
In the event that Tenant has complied with the applicable requirements set forth herein for the payment of the Tenant Allowance and Landlord has failed to deliver the applicable payment of the Tenant Allowance or any portion thereof within the allotted time period, then Tenant may offset the delinquent allowance from Tenant's monthly Minimum Rent and/or other charges plus interest at the prime rate as set forth in the Wall Street Journal plus four percent (4%) and the right to two days of rental abatement for each day of delinquency.
Tenant shall not be required to provide lien waivers or any other documents from any subcontractor.
Tenant Allowance is great when you get it, but can be frustrating to collect. Like an insurance company, landlords try to make it incredibly difficult for you to collect. They have delayed payment terms, and often require painful documentation. Especially if you’re managing cash tightly, this provision helps to level set expectations.
Landlord Work: Landlord shall deliver the Premises [“as is”] with the following exceptions: Landlord shall deliver the Premises secure, structurally sound, watertight, in compliance with fire and life safety code, and in broom clean condition with prior tenant’s trade fixtures removed. Landlord shall also deliver the Premises free and clear of any hazardous substances including, but not limited to, asbestos (encapsulated or not).
This is pretty straightforward. I would caution that any time a landlord refuses to accept any of these conditions is usually not a good sign they have confidence in the conditions of their space.
Radius [Number of miles] miles for Lease Years [X through Y].
I wouldn’t offer this, but I wanted to include it in this newsletter just to talk through it. Landlords sometimes ask for this as a means of ensuring you don’t cannibalize yourself. This usually can be agreed to at a certain level (eg 1 mile radius, since you likely won’t do that anyways depending on your concept). The issue arises when landlords then also want to penalize you for wholesale accounts in that radius, which you should push back on — I’ve always found that having wholesale AND retail channels in the same area actually help both!
Relocation: Landlord shall have no right to reconfigure or relocate the Premises.
Again, wouldn’t offer this, but is something a landlord will sometimes ask for if they’re a non-street landlord. Unless you’re a tenant with a lot of negotiating power (which you probably aren’t if you’re a DTC brand or reading this), this is sometimes non-negotiable — so the key is to negotiate the conditions (eg similar size, quality, etc.).
Union Labor Tenant shall not be required to use union labor and/or agree to any labor harmony language in the lease.
Regardless of your stance on unions, the reality is that they generally drive up the price of your buildouts. Some landlords will prefer or force you to use union labor, so this provision just clarifies and voids that requirement, if that’s a stance you’d like to take.
Assignment & Subletting: Tenant may assign or sublease to the following permitted transferees without Landlord's consent: (i) its affiliates; (ii) a successor by merger or consolidation, (iii) purchaser of a majority of the assets of Tenant, and (iv) purchaser of a majority of the retail stores trading under the same Trade Name. Other assignments or subleases shall require Landlord's prior written consent, not to be unreasonably withheld, conditioned or delayed.
This is arguably the most important provision, other than the economics. Getting out of your lease is critical to ensuring it doesn’t single handedly destroy your business. This is also a critical provision to get right as you prepare for an acquisition: having the wrong language in here could delay the transaction by requiring unnecessary levels of landlord consent. You should review this with your company’s attorney to ensure the language here offers you maximum flexibility.
Brokers: [Broker name, and any relevant information regarding their compensation or engagement structure]
Confidentiality: Landlord and Landlord’s brokers shall keep all matters relating to this transaction confidential.
Conditions: This proposal is not to be a contractual obligation, other than Landlord's confidentiality and exclusivity obligations set forth above. Any firm obligation of either party is subject to negotiation of a definitive lease agreement that shall be mutually satisfactory to both parties.
It is understood and agreed that this proposal does not constitute an offer to lease but rather an attempt to establish a basis of understanding to allow both parties to proceed in negotiations. Both parties further acknowledge that only fully executed lease agreements shall constitute a legally binding commitment to lease this property.
If the terms outlined above are acceptable, please have the appropriate party sign and return to my office.
ACKNOWLEDGED AND AGREED:
[Authorized landlord representative]
By:
Name:
Title:
Date:
[Authorized tenant representative]
By:
Name: __________________
Title: ___________________
Date:
Common Exhibits
Exhibits can vary, but usually include:
Work Letter: description of any installations, repairs, or construction the landlord is required to do before giving you possession
Leasing Plan: usually highlights where the space sits within a center/street for maximum certainty
Lease Outline Drawings (LOD): this reflects the literal space and some basic dimensions
Important considerations when negotiating a deal
As you engage landlords (or brokers) to negotiate a deal, you should keep in mind a number of things that might not be obvious if you’ve never done business in this world before. Signing a lease isn’t as simple as landing on a rent figure and signing a piece of paper.
You CAN negotiate the terms: It surprises me how many brick and mortar newbies don’t know this. You can literally negotiate anything and everything in a lease. That doesn’t mean you’ll get it, but a retail LOI and lease is typically not a “take it or leave it” situation like an apartment lease. It kills me every time I hear a brand has a few signed leases that they didn’t negotiate at all.
Time kills all deals: This is a mantra you’ll probably hear often as you start doing more deals. The basic premise is that you’re rarely the only prospect a landlord has for a space. The longer you drag your feet, the more likely it is the landlord will move on. Even if you’re the “cooler” or more lucrative option, if your negotiations are going to cost the landlord an additional 3 months of downtime then they will lose patience. This has happened to me a couple times (or so I was told…). It’s never the end of the world, but can be frustrating to lose a great deal because you or the executive team couldn’t make up their minds.
Your existing stores set a precedent: If you have existing locations, then landlords will want to know (1) how they perform and (2) how they look. Put another way, they don’t want a poor performing store or one that looks atrocious. They’ll look to you tell them your
Brand presentation/perception: example of landlord not knowing new protos
Conforming deals / setting a precedent: importance of conforming and setting precedents
Negotiation power: smaller or underperforming brands = very little leverage
Relationships matter: real estate is an imperfect market; landlords can choose to turn your offer down, even if it is way above market, for any reason whatsoever. If you insult a landlord or a broker, your reputation will precede you — and not in a good way.