The short answer: the letter of intent (LOI) is where a retail deal is really negotiated. Its business terms are usually non-binding, but once they are agreed, landlords resist reopening them while the lease is drafted. Settle occupancy cost, the build-out contribution, the timing of rent, the term and the exits, use and exclusivity, and the guarantee at the LOI stage, and keep at least one real alternative alive while you do.
What is a retail LOI, and what is it not?
An LOI is a short document, often a few pages, that records the business terms both sides intend to put in a lease. It is not the lease. The binding commitment usually comes only when the lease is signed. Some LOIs do include binding clauses, such as confidentiality or a period during which the landlord agrees not to negotiate with others for the same space, so read every clause.
The LOI matters because the lease is drafted from it. A point left vague in the LOI tends to be resolved in the landlord's lease form, which was written for the landlord.
Which terms should the LOI settle?
In rough order of impact on the store's economics:
- Premises and size. The exact space, and how square footage is measured. Rent, CAM and the TI allowance are all multiplied by it.
- Base rent and increases. The starting rent and how it grows over the term.
- Pass-through charges. Whether the lease is NNN or gross, the current estimates for CAM, taxes and insurance, caps on controllable increases, and any administrative fee.
- The landlord's contribution to the build-out. The TI allowance, how and when it is paid, and the work the landlord will do before delivery.
- Free rent and rent start. How long before rent starts, and what triggers it: delivery, opening, or a date.
- Term and exits. Initial term, renewal options, and any early termination or kick-out right if sales fall short.
- Use and exclusivity. A use clause broad enough for your concept to evolve, and an exclusive that keeps a direct competitor out of the property.
- Co-tenancy. For shopping centers, remedies if anchors close or occupancy drops.
- Signage, parking and hours. Practical items that drive sales and are hard to add later.
- Guarantee and security. Who guarantees what, for how long, and whether the guarantee shrinks as you pay on time. See personal guarantees in US retail leases.
- Contingencies. For example, the lease taking effect only if you obtain the permits and approvals your use requires.
- Assignment. The right to transfer the lease to a franchisee, an affiliate or a buyer of the business.
Definitions for each term are in US retail lease terms explained.
Where does a tenant's leverage come from?
- Real alternatives. A second space that genuinely works changes the landlord's math. This is the main reason to search widely before negotiating.
- What the tenant brings to the property. Landlords value tenants that bring repeat visits and strengthen the mix around them. A clear, credible case for why your concept helps the property is worth negotiating with. See how that played out at Wild Fork.
- Timing. Vacant space costs the landlord every month. A tenant that can commit on a clear schedule is worth more than one that cannot.
- Credit. A stronger guarantee or deposit can buy a larger allowance or better rent. Trade them deliberately rather than giving both.
Which mistakes are expensive to fix later?
| Mistake | What it costs |
|---|---|
| Comparing asking rents instead of total occupancy cost | A cheaper rent with higher pass-throughs can cost more every year |
| Leaving the TI allowance or delivery condition vague | Build-out costs land on the tenant |
| Agreeing to a rent start date before the permit schedule is known | Paying rent on a store that cannot open |
| Accepting a narrow use clause | Blocks menu, format or product changes later |
| Unlimited personal guarantee for the full term | Personal exposure long after the store has proven itself |
| No early exit for a first store | No way out if the market thesis was wrong |
From LOI to lease
Once the LOI is signed, the landlord's attorney usually drafts the lease. Your attorney reviews the legal terms; your broker checks that every business point from the LOI made it into the draft, unchanged. Expect the LOI and lease together to take two to four months for most retail deals.
How Site Logic helps
Site Logic runs the LOI from the tenant's side, with the market analysis behind it, so the negotiation is anchored in what the store needs to earn. Read about our tenant representation work, or what a tenant rep does and who pays.
Frequently asked questions
Is a retail LOI binding?
The business terms in a retail LOI are usually non-binding, and the deal is only binding once the lease is signed. Some LOIs include binding provisions, such as confidentiality or a period of exclusive negotiation, so read the LOI as carefully as a contract.
Who drafts the LOI?
Often the tenant's broker or the landlord's broker, using the terms the parties have discussed. Either way, the tenant should review it with its broker and, for anything unusual, its attorney before signing.
How long does LOI negotiation take?
Anywhere from a few weeks to a few months, depending on how many landlords are in play and how complex the deal is. Together with the lease, two to four months is a realistic range for most retail deals.
Should I negotiate with more than one landlord at once?
Yes, when you can. Real alternatives are the strongest source of leverage a tenant has, and landlords negotiate differently when they know a deal can go elsewhere.