Leasing Office Space - Letter of Intent

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In most cases, the information from the services will adequately address the issue of criminal activity near the office space you're considering. However, the most current and contextual data you'll be able to obtain is from tenants at the property and local police officers.

Speak to Tenants

Tenants at the property where you're considering leasing office space can be a wonderful resource. They can provide information regarding crime in the area, problems with traffic, problems with ingress and egress, problems with parking, and other issues in the office building.

Letter of Intent (LOI)

Office space negotiations are complicated and time-consuming. Once you have located the office space that is ideal for your business, the next step is to negotiate an agreement that protects you and is acceptable to the landlord. Industry practice for office space is to negotiate a letter of intent before negotiating the lease.

Use an Atto
ey!

Engage an atto
ey to assist in the letter of intent negotiation. It probably seems that the letter of intent is informal and can easily be negotiated without an atto
ey. However, there are issues you should address in the letter of intent which may not be obvious if you have not previously negotiated letters of intent for office space.

Wow! This is Complicated

Common factors for a office space letter of intent include: defining the parties (lessor and lessee aka landlord and tenant), defining the space, defining the rent, the initial term, any renewal options, rent for renewal option period(s), the day when lease payments commence, the date of occupancy, the condition of the space when the landlord provides it to the tenant, tenant improvement allowances provided by the landlord, who performs the tenant improvements, whether union labor required for tenant improvements, whether the tenant required to use a general contractor for tenant improvements (TI), who pays for the cost of the ADA compliance, who maintains what (i.e. roof, HVAC, electrical, plumbing, etc), who pays which expenses, calculating the payment for expense escalations, free rent, and identification of the broker and payment of the brokerage fee.

You Mean There is More!

Other issues which you may want to address in the letter of intent include expense escalations, eminent domain, foreclosure, maintenance standards, definition of the amount of leasable space, personal guarantees, purchase option, subleasing, dedicated parking, who is responsible for obtaining variances related to signage and usage of the office space, expansion options, first right of refusal, can the tenant keep the TI allowance not needed for construction, can the landlord relocate the tenant if the space is needed to accommodate another tenant, late payment fees, the mechanics of providing notice of default and any options for the tenant to cure the default, mechanics of dispute resolution between the landlord and tenant, and a right to terminate if your business is not successful.

Complete LOI First

Complete and obtained an executed copy of the letter of intent before beginning on the lease agreement. The primary objective of the letter of intent is to negotiate and agree upon the business issues. The lease documents these agreements. Discuss fees to negotiate the lease with your atto
ey. Agree upon an hourly rate and estimate of the total fees. Agree the atto
ey will call it that appears the cost is going to exceed the estimate.

The following sections of the leasing office space article focus upon issues that merit commentary.

Renewal Options

Renewal options -- tenants love them and landlords prefer to avoid them. In general, a larger number of shorter renewal options is better for the tenant. In addition, shorter notice periods to announce the tenant's intent to are desirable for the tenant. Landlords prefer as much notice as possible regarding whether or not the tenant plans to renew.

Renewal Option Rental Rates

Renewal option rental rates -- tenants typically want fixed rental rates for renewal periods. Landlords typically want the rental rate based upon market rent. Agreeing upon market rents can be difficult and expensive. Reasonable people can disagree regarding the level for market rent for a office space. For example, should the premium for a great view be 5% or 25%.

The Market Research and Consulting division of O’Connor & Associates provides information necessary to make decision to commercial real estate professionals. Occupancy and Rental Data, ownership and management information are routinely gathered for four major land uses – multifamily, office, retail and industrial. This information allows investors to compare competitive properties, facilitate business decisions and track market and submarket performance. In addition the data is useful to brokers who for example continually monitor Houston retail space leasing, Houston office space leasing, Dallas retail space leasing, Leasing Retail Space - Know Your Neighbors Dallas industrial leasing, Houston industrial space leasing, Houston apartments, Dallas apartments, Fort Worth apartments, Leasing Retail Space - The True Costs of Leasing Space Austin apartments, and San Antonio apartments. Quality real estate market data provides decision makers the information to make informed decisions. O’Connor & Associates has been providing market data since 1988. Timely, accurate real estate data also provides the information our real estate appraisers, consultants, and property tax consultants need.

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