• June 4, 2018

Use Clauses within a Letter of Intent (“LOI”)

Use Clauses within a Letter of Intent (“LOI”)

Landlord Advocates: Keep it narrow. Keep the LOI and any definitions as narrow as possible. This will lure the prospective tenant into the lease negotiation stage – where tenants will experience a significant loss of negotiating leverage.

Tenant Advocates: Keep it broad. Be detailed, yet as broad as possible in preparing and/or negotiating the LOI, so that the attorney negotiating the lease itself will have as much leeway and ammunition possible.

Take into account:

  • The context of current market conditions;
  • deal size;
  • competition for the space; and
  • nature of who in fact the landlord and tenant are.

Wide vs. Narrow

The “use” definition from a tenant’s perspective should nearly as wide as the Grand Canyon. Conversely, for a landlord the use provision should be slightly less narrow than a toothpick!

Exit Strategies

Given the events that can occur during the course of a long term lease, as a tenant advocate, create exit strategies for your client in your in initial draft of the letter of intent (including but not limited to the sale of a business and partners leaving and new ones joining a company).

By way of example (in desired order of fantasy if the initial use is that of a nail salon):

Pro-Tenant:  

Option 1: Any lawful retail use.

Option 2: Any lawful “dry” retail use.

Option 3: A nail, health, wellness and beauty facility, with the sale of men’s and woman’s clothing, health and beauty products and, provided it does not exceed 10% of tenant’s gross sales, bottled or canned drinks and pre-packaged (and prepared off-site) food products.

Pro-Landlord:

A nail salon and for no other purpose.

By way of example (in desired order of fantasy if the initial use is that of a restaurant):

Pro-Tenant:                                

Option 1: Any lawful retail use.

Option 2: Any lawful “wet” retail use.

Option 3: Retail sale of food and drink items, which may include but not be limited to items outlined in the attached schedule or addendum; and related retail kitchen and cooking items. Subject to applicable law, Tenant shall be permitted to serve non-alcoholic and alcoholic drinks from the Premises.

Pro-Landlord:

A [insert sole ethnic use, such as] a Chinese restaurant and for no other purpose (such prohibited purposes to include but not be limited to a bar, event space, a use requiring a public assembly license and/or a fast food restaurant).

By way of example (in desired order of fantasy if the initial use is that for an office):

Pro-Tenant:

Option 1: Any lawful use.

Option 2: General, executive, sales, training and administrative offices.

Option 3: General, executive, sales, training and administrative offices for business professionals, including but not limited to an accounting firm, and ancillary uses related thereto.

Pro-Landlord:

An accounting office and for no other purpose.

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