Reading a Commercial Lease LOI Like a Broker

A letter of intent is supposed to be short. It lists the business terms, both sides sign, and lawyers turn it into a lease. That is the theory. In practice, the LOI sets most of the economics, and the lease mostly builds the mechanics around numbers that are already agreed.

I was licensed as a real estate agent in 2012, before law school, and have been a managing broker since 2021. Reading an LOI the way a broker does comes down to a narrow question: which lines in this document will actually control what the tenant pays and what the landlord can enforce over the full term? Usually it is a handful.

Rent is the headline, not the whole number

Base rent gets the attention. The terms that move the real cost are the escalation (a fixed bump, a percentage, or an index-based increase), the length of the term, and any free-rent or abatement period. A rate that looks competitive in year one can look different by year five, depending on the escalation structure.

How operating expenses are structured

Whether a lease is gross, modified gross, or net decides who carries taxes, insurance, and common area maintenance, and that can matter as much as base rent. If the LOI says "NNN" and nothing else, the business terms include the tenant's share of taxes, insurance, and CAM with no cap, exclusion list, or audit right. Those protections can still be raised in the lease, but the landlord can point out that they were never part of the outline. What happens when those charges are trued up at year-end is covered in CAM Reconciliation Disputes, Explained.

Delivery, improvements, and the start date

The LOI should say what condition the space will be in at delivery, who pays for improvements, how large any allowance is, and when rent starts. "Rent commences upon completion of tenant improvements" sounds settled until the build-out runs long and nobody agreed what "completion" means. A specific date, or a defined trigger with an outside date, avoids that argument.

Use, exclusives, and transfer rights

A permitted-use clause that is too narrow can block a reasonable change in the business later. If the tenant needs an exclusive, it belongs in the LOI, because adding one after the landlord has committed space to other tenants is much harder. Assignment and sublease rights matter most to a business that may sell, merge, or restructure during the term.

Guaranties

Landlords often ask a small-business tenant for a personal guaranty. Agreeing to one in principle at the LOI stage, with no cap on amount or time, tends to produce an unlimited guaranty in the lease draft. If there is going to be a limit, such as a dollar cap or a burn-off after a period of on-time payment, the LOI is the place to say so.

What "non-binding" does and does not do

Most LOIs say they are non-binding, with exceptions for things like confidentiality, exclusivity, or access to the property. Whether a particular LOI creates obligations depends on its language and on how the parties conduct themselves afterward, so that sentence is worth reading word for word. Even a truly non-binding LOI carries practical weight: once both sides have signed, reopening a point has a cost.

What the LOI leaves out

Anything the LOI does not mention will usually be decided in the first lease draft, and the first draft usually comes from the landlord's side. That is simply how the process runs. A short list of open items, agreed before signing, keeps the important ones from being settled by default. The lease terms worth slowing down for are a good place to start that list.

Every LOI is different, and which terms matter most depends on the property, the business, and the length of the commitment. If you are reviewing or preparing a commercial lease LOI in Tennessee, my office can review it before it is signed.

Educational disclaimer: This article provides general Tennessee educational information only and is not legal advice for any specific lease, letter of intent, or transaction.