Why this matters
The letter of intent sets the economics of your lease before lawyers ever get involved. First time founders often treat the landlord's first terms as fixed. They are not. Rent, term, TI allowance, and free months are all negotiable, and once they are in the LOI they may be difficult to improve in the lease draft.
What "done" looks like
- A signed LOI covering rent, escalations, term, renewal options, TI allowance, and free rent
- Terms that reflect your contractor's buildout estimate from the previous step
- An explicit statement that the LOI is nonbinding on business terms, reviewed by counsel
- You compared asking rents on at least two or three comparable spaces
How to do it
- Gather comps: asking rents for similar nearby spaces give you a factual anchor.
- Negotiate more than one lever: base rent, annual escalation, TI allowance, free rent, and renewal options are all negotiable.
- Tie free rent to your buildout timeline so you are not paying for a space you cannot occupy.
- Anchor the TI allowance to your contractor's line item estimate.
- Get every agreed term in writing in the LOI. Verbal promises vanish in lease drafts.
Common mistakes
- Negotiating only base rent and ignoring escalations, CAM, and TI, where the real money moves
- Accepting a "market standard" claim without pulling comps
- Signing an LOI with binding exclusivity that locks you out of other spaces for months
Real world examples
- Commercial LOIs are often intended to be nonbinding on economic terms, as is widely documented. Enforceability depends on the wording and jurisdiction, so require explicit nonbinding language and have counsel review it. LOIs let both sides negotiate before paying lawyers to draft the lease.
- Free rent periods covering the construction window are a standard, widely documented concession in retail and restaurant leasing, especially for spaces that sat vacant.
From a founder's point of view
Landlords negotiate leases for a living; most founders do it once. The LOI is the one moment the field can be leveled with comps and a contractor's number. After signatures, every clause tilts toward the landlord.
Rule of thumb
If you accepted the first number on rent, TI, or free months, you didn't negotiate. Every line of an LOI is an opening offer.
