Letters of Intent (Leases)

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Letters of Intent (Leases)

You’ve spent time searching for the right dental office space and perhaps invested in a consultant to perform demographic research to help you choose the optimal location. You’ve found the perfect office space and now you’d like to make sure you don’t lose it to someone else.

When dealing with a real estate broker, you’ll often be asked to sign a “Letter of Intent” to show that you are serious and committed to the space and to get the ball rolling with negotiating the preliminary terms of your lease. A Letter of Intent represents the essential terms of the lease you hope to ultimately sign, such as the length of the lease (or “term”), the amount of rent to be paid, the amount of the tenant allowance provided by the landlord (if any), the respective responsibilities of landlord and tenant, and other key lease provisions. It helps to make sure that you and the landlord are on the same page. It also represents the first stage of drafting and negotiation, and while it may be non-binding (depending on how it’s written), it carries a lot of weight moving forward. Accordingly, you’ll want to include as many detailed provisions in your favor as you can before you sign any Letter of Intent. Keep in mind that if the Letter of Intent is missing certain key provisions, it may be difficult (and expensive) to work those provisions into your lease later in the ensuing lease negotiations.

Some key provisions that deserve careful consideration and that should, if possible, be locked down in the Letter of Intent prior to further negotiations and lease drafting, include:

  • Rent & free rent periods;
  • Exclusivity to operate a dental practice at that location;
  • Permitted use & zoning;
  • Personal guaranty (scope and parameters of);
  • Tenant improvement allowance (the amount and timing of);
  • Prohibition against relocating you to a different location in the building and/or center;
  • Assignment/Subletting (terms that are favorable to your practice); and
  • Purchase Rights and/or Options.

Often there is pressure to sign a Letter of Intent and to “lock down” the space before all of the key provisions you want to see in your lease are included, but this is the time to work through the most important issues in your lease. If you find that you and the landlord can’t agree on a fundamental lease issue such that it’s a “deal breaker,” you’re better off walking away at this early stage before you’ve spent money and time in extensive lease negotiations and lost out on other prime office space. While arguing over the inclusion of key provisions may be a pain in the neck now, it will pay off huge when you’re negotiating your lease later.

Categories: Blogs, Dental Use Exclusivity, Office Leases, Permitted Use, Real Estate, Zoning