| name | offer-to-lease-expert |
| description | Use when drafting or reviewing an offer to lease, letter of intent, or term sheet, deciding whether it is binding or non-binding, structuring conditions precedent and deposit provisions, negotiating exclusivity and acceptance deadlines, or converting a signed offer into a formal lease. |
What is an Offer to Lease?
Offer to Lease = Preliminary agreement documenting key business terms BEFORE drafting the full formal lease. Sets framework for negotiations and lease preparation.
Purpose:
- Lock in key deal terms early
- Create exclusivity period for tenant
- Document understanding before incurring legal costs
- Provide framework for landlord's form lease
Alternative names: Letter of Intent (LOI), Term Sheet, Heads of Agreement, Memorandum of Understanding (MOU)
Binding vs Non-Binding
CRITICAL DISTINCTION: Most offers to lease are non-binding on the business terms but binding on specific provisions (confidentiality, exclusivity, good faith negotiation, deposit).
Standard Structure
Non-Binding Provisions (business terms):
- Rent amount and escalations
- Term and renewal options
- Premises size and location
- TI allowance and landlord's work
- Operating expenses and exclusions
- Use clause
- Parking allocation
Binding Provisions:
- Exclusivity: Landlord takes property off market for negotiation period (30-90 days)
- Deposit: Tenant pays good faith deposit (refundable if conditions not met)
- Confidentiality: Terms remain confidential
- Good faith negotiation: Parties negotiate lease in good faith
- Expiry: Offer expires if lease not executed by deadline
- Costs: Who pays lease drafting costs
Language Making it Non-Binding
Standard clause:
"This Offer to Lease is not a binding agreement to lease the Premises and does not create any legally enforceable obligations except as expressly stated herein. The parties' obligations are conditional upon execution of a formal lease acceptable to both parties and their respective legal counsel."
"Subject to lease": All terms subject to parties agreeing on formal lease documentation.
When Offer Becomes Binding
Offer can become binding contract if:
- All material terms agreed: Parties agreed on all essential terms (no gaps)
- Intention to be bound: Language indicates parties intended to create binding agreement
- No "subject to lease" language: Missing standard disclaimer
- Consideration exchanged: Deposit paid and accepted
- Conduct: Parties act as if bound (tenant takes possession, pays rent, makes improvements)
Risk: If offer is too detailed and parties act on it, court may find binding lease was created even if parties intended only preliminary agreement.
Key Provisions
Premises
- Rentable area (specify measurement standard: ANSI/BOMA)
- Unit/suite number
- Exclusive use of parking spaces (#)
- Floor plan attached if available
Term
- Commencement date (fixed date or "upon substantial completion of landlord's work")
- Lease term (e.g., 5 years)
- Renewal options (e.g., two 5-year options at FMV)
Rent
- Base rent ($/SF/year) by year or with escalation formula
- Free rent period (# months)
- First rent payment date
- Operating expenses ($/SF estimate, tenant's proportionate share %)
- Additional rent (utilities, taxes, insurance)
Tenant Improvements
- Landlord's work: Description or reference to work letter to be prepared
- TI allowance: $/SF or total dollar amount
- Turnkey vs allowance: Who manages construction?
- Timing: Substantial completion date
Security Deposit
- Amount (typically 3-6 months' rent)
- Form (cash, letter of credit, or personal guarantee)
- Reduction schedule (e.g., reduces to 1 month after 2 years good performance)
Use
- Permitted use (specific or general)
- Exclusivity (if any - landlord won't lease to competing uses)
Conditions Precedent
Terms binding only if conditions satisfied:
Tenant's conditions:
- Landlord provides evidence of title and right to lease
- No environmental contamination (Phase I ESA acceptable to tenant)
- Zoning permits tenant's intended use
- Landlord can obtain building permits for landlord's work
- Tenant obtains financing
- Tenant's board approval
Landlord's conditions:
- Tenant provides satisfactory financial statements
- Tenant's credit check satisfactory
- Personal guarantee from principals (if required)
- Current tenant vacates (if premises occupied)
Timing: Conditions must be satisfied or waived by date certain (typically 30-60 days)
Waiver: If condition for one party's benefit, that party can waive
Exclusivity Period
- Landlord takes premises off market for negotiation period (30-90 days)
- Landlord will not negotiate with other tenants
- If tenant doesn't execute lease by deadline, exclusivity expires
- Landlord can market premises again
Tenant's leverage: Longer exclusivity gives tenant time for due diligence
Landlord's risk: Property off market, loses other opportunities
Balance: 60 days is typical for straightforward deals; 90 days if complex landlord's work or zoning issues
Good Faith Deposit
- Amount: $5K-$50K depending on deal size
- Held in trust by landlord's lawyer or broker
- Refundable if: Conditions precedent not satisfied, landlord breaches, parties can't agree on lease after good faith negotiation
- Non-refundable if: Tenant breaches, tenant fails to negotiate in good faith, tenant fails to satisfy tenant's conditions without reasonable efforts
Lease Preparation
- Landlord prepares lease using landlord's standard form
- Tenant has right to review and negotiate (typically 15-30 days)
- Parties negotiate in good faith
- Legal costs typically borne by each party (sometimes landlord pays tenant's legal fees up to cap, e.g., $2K-$5K)
Acceptance Deadline
- Offer open for acceptance until specific date and time
- Revocable until accepted (unless supported by consideration)
- Acceptance method: Signed copy delivered to offeror
- If not accepted by deadline, offer is void
Expiry of Exclusivity/Binding Lease Deadline
- If formal lease not executed by date certain (e.g., 60-90 days from acceptance), offer terminates
- Neither party obligated
- Deposit returned to tenant (unless tenant in breach)
Landlord Considerations
Goals:
- Lock in tenant: Prevent tenant from shopping other properties
- Minimize landlord obligations: Keep offer simple, defer details to lease negotiation
- Conditions precedent: Build in outs (if can't get permits, if tenant credit poor)
- Protect deposit: Make deposit non-refundable if tenant backs out
- Limit exclusivity: Short period (30-45 days), hard deadline for lease execution
Risks:
- Premises off market during exclusivity (lost opportunities)
- Detailed offer may be deemed binding contract
- Tenant may use offer to negotiate better deal elsewhere
Negotiation points:
- Short exclusivity (30-45 days)
- Landlord's standard form lease governs
- Minimal conditions precedent for landlord
- Deposit non-refundable if tenant breaches or fails to negotiate in good faith
- Legal costs borne by each party
Tenant Considerations
Goals:
- Lock in deal terms: Get landlord committed to rent, TI, term before spending on legal fees
- Exclusivity: Prevent landlord from negotiating with others while tenant completes due diligence
- Conditions precedent: Build in outs (if zoning doesn't work, if financing falls through, if environmental issues)
- Refundable deposit: Protect deposit if deal doesn't close through no fault of tenant
Risks:
- Deposit at risk if tenant backs out
- Short exclusivity may not give enough time for due diligence
- "Landlord's standard form lease" may be onerous
- Offer may lack critical tenant protections (SNDA, operating expense exclusions, assignment rights)
Negotiation points:
- Longer exclusivity (60-90 days)
- Include key tenant protections in offer (SNDA, operating expense exclusions, assignment/sublet rights, renewal options)
- More conditions precedent for tenant (zoning, financing, board approval, environmental)
- Deposit refundable if conditions not satisfied or parties negotiate in good faith but can't agree on lease
- Right to review landlord's form lease before offer becomes binding
- Landlord pays tenant's reasonable legal fees (cap at $5K)
Conditions Precedent Drafting
Objective condition (preferred): Clear test, no discretion
"Tenant obtaining a Phase I Environmental Site Assessment acceptable to tenant, acting reasonably"
Subjective condition (avoid): Unlimited discretion, bad faith risk
"Tenant's satisfaction with premises" (too vague)
Time limits: All conditions must have deadline for satisfaction or waiver
"Landlord to deliver Phase I ESA within 30 days of acceptance"
Due diligence standard: "Acting reasonably" or "commercially reasonable efforts"
Prevents party from using condition as escape clause in bad faith
Mutual conditions: Both parties must satisfy (e.g., "Parties negotiate and agree on formal lease within 60 days")
Converting Offer to Binding Lease
Once offer accepted and conditions satisfied:
- Landlord prepares formal lease (typically landlord's standard form incorporating offer terms)
- Tenant reviews (15-30 days)
- Negotiations on additional provisions not in offer
- Execution: Both parties sign lease
- Conditions precedent in lease satisfied: Permits obtained, financing closes, etc.
- Commencement: Lease takes effect, tenant takes possession
Common issue: Landlord's form lease conflicts with offer terms → Offer terms prevail
Best practice: Attach offer to lease as schedule, state "In event of conflict between Offer and Lease, Offer terms prevail"
Deposits
Refundable vs Non-Refundable
Refundable if:
- Conditions precedent not satisfied (landlord can't get permits, tenant's financing falls through)
- Landlord breaches (landlord refuses to negotiate, landlord leases to someone else)
- Parties negotiate in good faith but can't agree on lease terms
Non-refundable if:
- Tenant breaches (tenant stops responding, tenant negotiates in bad faith, tenant leases elsewhere)
- Tenant fails to satisfy tenant's conditions without reasonable efforts (tenant doesn't apply for permits, doesn't submit complete financials)
- Tenant unilaterally terminates without valid reason
Application if lease executed: Deposit typically applied to first month's rent or security deposit
Holding Deposit in Trust
Deposit held by:
- Landlord's lawyer (in trust)
- Tenant's lawyer (in trust)
- Real estate broker (in trust)
- Escrow agent
Not by landlord directly (would indicate binding contract, consideration paid)
Acceptance and Revocation
Offer is revocable until accepted (unless supported by consideration)
Acceptance: Offeree signs and delivers copy to offeror
Timing: Must be accepted by deadline stated in offer
Communication: Acceptance effective when received by offeror (not when sent)
Counter-offer: Any change to offer terms is rejection + counter-offer (resets negotiation)
Exclusivity and Good Faith Negotiation
Exclusivity provision (binding):
"Landlord agrees that for 60 days from acceptance, Landlord will not market Premises to other tenants or negotiate lease with any other party."
Breach: If landlord leases to someone else during exclusivity, tenant can sue for damages (wasted costs, lost opportunity)
Good faith negotiation (binding):
"Parties agree to negotiate formal lease in good faith based on terms in this Offer."
Breach: If party negotiates in bad faith (unreasonable positions, stops responding, makes excessive demands), other party can sue for damages
"Good faith" standard: Honest dealing, reasonable positions, timely responses, willingness to compromise on non-material terms
Common Issues
Issue 1: Offer too detailed, becomes binding contract
Solution: Include clear "subject to lease" language, state non-binding except for specific provisions
Issue 2: Conditions precedent too vague
Solution: Objective tests, time limits, due diligence standards ("acting reasonably")
Issue 3: Short exclusivity doesn't give tenant enough time
Solution: Negotiate 60-90 day exclusivity with conditions precedent tied to milestones
Issue 4: Landlord's form lease conflicts with offer
Solution: Attach offer to lease, state offer terms prevail in conflict
Issue 5: Deposit non-refundable even if landlord breaches
Solution: Negotiate deposit refund if landlord breaches or conditions not satisfied
Issue 6: No specificity on landlord's work
Solution: Attach preliminary work letter or floor plan to offer
Issue 7: Parties can't agree on lease after good faith negotiation
Solution: Include termination provision - if parties negotiate in good faith but can't agree within exclusivity period, offer terminates and deposit refunded
Best Practices
For Landlords:
- Simple offer (defer details to lease negotiation)
- Short exclusivity (30-45 days)
- Landlord's standard form lease governs
- Few conditions precedent for landlord
- Deposit non-refundable if tenant breaches
- Clear "non-binding except as stated" language
For Tenants:
- Include key protections in offer (SNDA, operating expense exclusions, assignment rights)
- Longer exclusivity (60-90 days)
- More conditions precedent (zoning, financing, environmental)
- Deposit refundable if conditions not satisfied or good faith negotiation fails
- Right to review landlord's form before committing
- Landlord pays tenant's legal fees (cap at $5K)
