A note before you read: this is my own general commentary and opinion, based on my experience reviewing commercial leases for business owners in Los Angeles. It is not legal advice, it is not a definitive statement of California law, and every deal turns on its own facts, its own market, and its own landlord.
The letter of intent is the moment you have the most leverage and the least paperwork, and in my experience most tenants spend it on rent alone. My view is that the LOI is where the expensive terms get decided — not because the LOI binds you, but because whatever it says becomes the default when the landlord’s lawyer drafts the lease, and moving a term after that costs goodwill you may want to spend elsewhere.
Nearly every LOI I see is labeled non-binding, and as I read them that is usually accurate as to the business terms. But the practical reality is different from the legal one. Once a term sits in a signed LOI, renegotiating it makes you look like you are retrading the deal, and brokers on both sides will push back. So I treat the LOI as though it decides the lease, because functionally it often does.
Rent is the term everyone negotiates and the one that matters least
Base rent is visible, comparable, and easy to argue about, which is exactly why landlords are comfortable negotiating it. The terms that quietly move more money are the ones tenants tend to leave for later: how operating expenses are calculated and capped, who pays for capital repairs, what the tenant improvement allowance actually covers, and what happens at renewal.
My general suggestion is to spend your LOI leverage on the structural terms and accept that base rent will land close to market. A dollar of base rent concession is worth far less over a five-year term than a properly drafted cap on controllable operating expenses.
What I generally suggest putting in the LOI
- The operating expense or CAM structure — base year or expense stop, and an annual cap on controllable expenses, stated as a percentage
- An express exclusion for capital replacements, or at minimum a requirement that they be amortized over useful life with only the annual portion passed through
- The tenant improvement allowance, who manages the work, who owns the improvements, and whether any unused allowance can be applied to rent
- Free rent or abatement, and whether it is gross or net of operating expenses
- Assignment and subletting rights, particularly transfer to an entity buying your business
- Whether a personal guarantee is required, and if so whether it burns off after a defined period of on-time payment
- Renewal options with the rent-setting mechanism spelled out, not just “at market”
- The condition the premises will be delivered in, and the date delivery is measured from
Delivery condition and the commencement date
This is the term I see cause the most avoidable pain in Los Angeles, particularly in older buildings and converted industrial space. If the LOI says rent commences on a fixed calendar date but the landlord is doing base building work first, you can end up paying for a space you cannot occupy.
My general suggestion is to tie commencement to substantial completion of the landlord’s work and delivery of the premises, with an outside date after which you have a remedy. What that remedy should be depends on the deal, and I would rather talk it through than offer a formula.
The guarantee question
If you are signing through an LLC or corporation, the landlord will very likely ask for a personal guarantee, and my experience is that this is more negotiable at the LOI stage than after. A guarantee that steps down over time, or that is capped at a fixed number of months of rent rather than the full remaining term, is a materially different risk than an unlimited one. Raising it once the lease is drafted tends to be read as a late ask.
Being candid about leverage
None of this means you will get these terms. Leverage depends on vacancy in the submarket, how badly the landlord wants your use and your credit, and whether you have a real alternative. In a tight submarket with one viable space, you may get very little, and I would rather tell you that than pretend otherwise.
What I do think is true regardless of leverage is that it costs you nothing to ask in the LOI, and asking later costs you something. Silence in an LOI is not neutral — it is a concession that gets drafted against you.
One clause worth adding
I generally suggest a line stating that the LOI is non-binding except for any confidentiality and exclusivity provisions, and that no party is bound until a lease is fully executed. It protects both sides, and in my view it makes the rest of the document easier to negotiate honestly, because nobody is worried they have accidentally signed a lease.
If you have an LOI in front of you and want a second read before you sign it, you are welcome to call me at (310) 556-9692. Lease and contract review is handled on an hourly or flat-fee basis, quoted in advance and set out in a written engagement agreement, and reviewing an LOI is usually a short and inexpensive engagement relative to what a five-year lease costs.
Related reading: Lease Negotiations, Personal guarantees in a commercial lease, How CAM charges are calculated, and Assignment and subletting rights.
A closing reminder: the above reflects my own general observations and opinions, not legal advice and not a definitive statement of California law. Reading this does not create an attorney-client relationship between us. Please speak with a lawyer about the specific facts of your situation before signing anything.
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