Making the Offer

The Anatomy of a Letter of Intent

Part 2 - Identifying the Parties, the Location
and Your Use

Although not a complete list of every consideration for your own LOI, the following portions are usually included in many of the letter-offers that larger companies send. Please bear in mind that your offer letter should always be non-binding and that you should always seek the review and approval of a qualified law professional for your specific needs and requirements.

The Landlord and the Tenant’s name (or owner/purchaser, if that’s the case): The opening salutation usually has the Owner’s/Landlord’s name and address; but most times their name is not the business entity that is going to be signing the lease (i.e.; Jack Frost D/B/A 1234 Main Street Realty, LLC). Since the agreement is going to be between your business and the Landlord’s business, you’ll want to identify each party by its business name.

If it's a freestanding building or vacant land, it’s usually preferable at this time to ask the landlord or owner for a copy of the property's deed, just to make sure that you are dealing with the actual owner of the parcel and not a contract vendee (that would be a person in contract to buy the property).

You, as the Tenant, should put your corporate entity as the leasing party (i.e., The Acme Pizza Company, LLC), NEVER your personal name. Signing personally places your personal assets (like your house, favorite coffee mug and other loved possessions) at risk and we have never seen a location so good that we would ever want to take that risk. Once again... always check with your attorney!

If you don’t yet have your corporate structure set up, make it a point to do it as soon as possible. Although it's not a complicated process, it is extremely important. Your attorney will be able to explain the reasons why but the long and short of it is, if something negative should happen to your business, your liability will be limited to the value of the LLC or corporation NOT your personal accounts and assets.

Carefully identify the premises – (i.e., 1234a Main Street Harmon, Virginia - A retail space consisting of 3,000 square feet). Usually, the area reflected in the letter will be the “gross” square footage of the space (which, as you may know, can be very different from your actual - or “net” - square footage).

Some Landlords and their attorneys are pretty fond of saying “approximately “X” square feet…which, if you were going to pay them “Approximately “X” dollars a month in rent”, would be a fair way to put it. In our opinion, life doesn’t work that way and neither should your LOI or lease. You need to measure, identify and agree in the letter, as accurately as possible, the actual square footage of your rentable area. If at all possible, attach and include a scaled rendering showing the exact size and position of the store as an exhibit.

Why be so anal about it? Because aside from it affecting your rent number (on a retail site with with a $45.00 per square foot rental, the difference between "Approximately" 3,200 S.F. and an actual 3,175 s.f. equates to an anual overpayment of $1,125. Not a big deal? Add in the additional rent (CAM, Taxes and Insurance) say, of five bucks and now you're overpaying $1,750 a year more than necessary. Not cool...

Detail your intended Use: Spell out how you intend to use the space; but try to be as general as possible. There are two very good reasons for this;  first, because it may affect your right to assign or sublease the space at sometime in the future and secondly, and just as important; you should think about restricting the Landlord’s ability to lease any adjacent space to a similar or competing Tenant. Although Restrictive Use clauses are usually best addressed in the final contracts, putting them on notice now may save some time later. 

 

Next: Base Rent & Additional Rent

 

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