What is a letter of intent (LOI) in industrial real estate?

What is a letter of intent (LOI) in industrial real estate?

A letter of intent is a preliminary document exchanged between a prospective tenant and a landlord that summarizes the key commercial terms of a proposed lease transaction. In the GTA industrial market, the LOI is the standard mechanism for reaching business-level agreement before spending legal fees on a full lease draft. The LOI defines the deal's economic framework — if the parties cannot agree on the LOI terms, the transaction ends before either side incurs significant legal cost. A typical GTA industrial LOI covers: the premises (address, unit, square footage), proposed lease commencement and expiry dates, base rent per square foot for each year of the term, free rent period (if any), tenant improvement allowance (if any), renewal options, permitted use, parking allocation, and basic landlord and tenant work obligations. Some LOIs also address assignment and sublease rights, personal guarantee requirements, and key landlord consent provisions. The LOI is generally non-binding on its commercial terms — either party can walk away from the transaction at any point before a formal lease is signed. However, most industrial LOIs include specific binding provisions: an exclusivity period (typically 30 to 60 days) during which the landlord agrees not to negotiate with other prospective tenants while the lease is being drafted, and a confidentiality provision protecting the deal terms from disclosure. A breach of the exclusivity provision can give the tenant grounds for a damages claim even though the LOI itself is non-binding. From a negotiating strategy perspective, the LOI is the most important document in the transaction — not the lease itself. The commercial terms established in the LOI will be reflected in the lease, and landlords are far more willing to negotiate rent, free rent, and TI allowances at the LOI stage than after the lease has been drafted. Once the LOI is signed and the tenant has invested time in lease review, the tenant's negotiating leverage diminishes. Pushing hard at the LOI stage on rent, options, and landlord work is the right approach. Tenants should also be aware that accepting a landlord's standard form LOI without modification can inadvertently lock in unfavorable terms. Key items to negotiate in any GTA industrial LOI include: a clear TI allowance with specified delivery conditions, a broad permitted use definition, renewal options at fair market value with a defined cap, and exclusions from CAM for capital expenditures. Michael Law represents GTA industrial tenants in LOI negotiation, lease review, and transaction management across Mississauga, Brampton, Vaughan, Markham, Durham Region, and the 905 corridor. Contact Michael at mlaw@lennard.com or (905) 917-2045 to structure your industrial lease transaction.