Rather than begin direct lease talks, many landlords and potential tenants will execute a letter setting forth wishes and expectations. These negotiations can be an enlightening process on both sides. Some basic definitions and understandings should be included for clarity in letters of intent. Consider it a way to avoid nasty surprises later. Create a paragraph for each section below, and include a signature line for all parties at the end.
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Parties: Describe the landlord and tenant. Include addresses and contact information. These are the parties involved in the lease.
Premises: Define the location, including address, square footage and any ancillary considerations, like storage facilities and parking. Include a drawing or photo if you can.
Use: Outline the purpose for which the premises will be used.
Term: Mention the proposed term of the lease, along with commencement and ending dates.
Possession: Will any improvements be undertaken before you take possession of the property? If possession is delayed for some reason, will the rent be prorated, and if so, by how much?
Contingencies: Include a section noting exceptions that will void this letter, like being unable to obtain financing or necessary licenses.
Rent: List rental rates with any scheduled increases, together with dates and percentages of increase.
Deposit: Stipulate the amount of any advance deposits, as well as how they will be handled and refunded. Will they be placed in an interest-bearing account? Will they be refunded after an inspection and within 30 days of the end of the lease term?
Common Area Maintenance: If common areas are billed separately, like utilities and landscaping, stipulate how the landlord will handle those charges, including annual adjustments.
Extensions: Note under which terms and conditions the lease can be extended. For example, a year's lease that will continue on a month-to-month basis after that.
Termination: Under what conditions, if any, will the landlord allow the termination of all or part of the lease? Include how much notice must be given, and what additional charges are be included.
Default: Define the terms of default, as in nonpayment by the tenant for a specific number of days. Decide if there will be any default stipulations assigned to the landlord.
Commissions: Who will pay commissions to the broker's agents?
Confidentiality: Mention that both parties agree to hold all information not used to secure funding confidential.
Tips and warnings
- If you want to get a head start on creating an letter of intent, there are software packages that have well-crafted legal forms. There are even speciality packages with an industry specific focus.
- Check the legal aid societies in your area for free advice on drafting letters of intent.
- Ask questions, and don't sign anything until you understand it. Leases and letters of intent can be designed to favour one party over another. If you have doubts, consult your attorney.
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