The relationship between landlords and tenants is key to property success, starting with a solid lease agreement. Key to this process is the Letter of Intent, which outlines essential terms like lease duration, rates, maintenance responsibilities, and improvement plans, setting the stage for a mutually beneficial partnership. By addressing sensitive issues upfront, such as HVAC maintenance and personal guarantees, landlords can effectively manage their properties while tenants gain assurance of their business growth potential. This step helps both sides agree on the main issues before getting into detailed legal costs.

Before the lease is solidified, it is a good practice to come to terms with the use of a Letter of Intent. This allows the basic business terms to be agreed to before either party engages in substantive legal expenses. The Letter of Intent is usually a non-binding agreement that outlines the financial terms including:

• lease term
• lease rate
• expenses paid by each party
• maintenance responsibility
• information about the tenant including intended use
• condition of premises and any intended improvements
• responsibility for the cost of improvements
• who manages the build out
• requirements for approval of improvements
• requirements for contractors
• security deposit details
• termination conditions

What is not addressed in the Letter of Intent can be negotiated in the lease. Based on the position of the landlord and the property’s marketability, a landlord may choose to get some of the more sensitive terms dealt with up front.

In my experience, two sensitive items include who maintains the HVAC system and to what extent and is there a personal or corporate guarantee. A landlord will desire to put as much responsibility for maintenance on the tenant and have a strong personal guarantee. A tenant may have a very different perspective.

As to the HVAC, it is helpful to take into account the age and condition of the HVAC when this is being discussed. This may require an inspection and updated service.

Once an agreement is made, it is important that the landlord review tenant financials and business plans so that they can be comfortable with the partnership that is being established. In fact, the financials and business plans can impact the specific guarantee requirements.