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Before you send an LOI: 5 things to settle first

JIGO Team··7 min read

General information only, not legal, tax, or immigration advice. JIGO is not a law firm.

Most founders treat the letter of intent as a formality. You found a space you like, the landlord's broker sends a one page template, you fill in a rent number and send it. The lease itself comes later, and that is where the lawyers get involved.

In practice, the LOI is where most of the deal is decided. We see the same pattern often, so this article walks through one recent example and the five things we now tell every founder to settle before an LOI goes out.

What we keep seeing

A founder opening a first US location finds a space and works with the broker who listed it. The landlord asks for a ten year term, the founder counters with five, and the LOI goes out. Only after that does the founder ask whether they should have had their own broker.

By then, three things are already fixed. The rent, the term and the escalation are on paper. The listing broker is set up to act for both the landlord and the tenant. And any tenant broker joining at that point arrives with little left to negotiate and a commission the listing broker would have to share. The deal can still be improved, but every option is harder than it would have been a week earlier.

None of this is a mistake anyone would notice from the LOI template. That is the point.

First, what an LOI is

A letter of intent (LOI) is a short document, usually one to three pages, that lists the main business terms of a lease before anyone drafts the lease itself: rent, term, size, start date, who pays for build-out, and so on. Most LOIs say their business terms are non-binding, so either side can still walk away until the lease is signed.

Two conditions apply. Some LOI clauses are often written to be binding, such as confidentiality or exclusivity (a period in which the landlord agrees not to negotiate with other tenants). And according to the law firm article listed in the references, courts in some states (its examples are from Texas) have enforced an LOI as a contract when it contained all the essential terms and lacked clear non-binding language. Read the last paragraph of the LOI as carefully as the first.

In our experience, terms agreed in the LOI are rarely reopened when the lease is drafted, because the landlord treats them as settled. This is not an official rule, but it is how most deals go.

The 5 things to settle first

1. Who represents you

The broker who sent you the template usually works for the landlord. If that broker also offers to "handle your side", that is dual agency (one broker acting for both landlord and tenant). It is legal in many states with written disclosure and consent, but the broker then has to stay neutral, which means nobody is pushing for your rent, your term or your exit rights.

State rules differ. California's agency disclosure rules cover commercial leases longer than one year, and a broker acting for both landlord and tenant has to disclose that and confirm it in a writing signed or acknowledged by both. Washington allows a "limited dual agent" only with the written consent of both parties, set out in the services agreement. In both cases, the moment to choose your own tenant broker (a broker who works only for the tenant) is before the LOI, not after.

In commercial leasing, the landlord typically pays both brokers' commission under its listing agreement, so a tenant broker usually costs the tenant nothing directly. Ask in writing who pays each broker and how much.

2. Your real number, not the rent line

The rent on an LOI is a rate, not a cost. Before you send it, turn it into a total:

  • The unit. Office rents in California and Washington are often quoted per square foot per month, while many other markets quote per square foot per year. Confirm which one you are looking at.
  • The structure. In a full service gross lease, the building's operating costs are included in the rent. In a triple net (NNN) lease, you pay base rent plus your share of property taxes, building insurance and common area maintenance, and those charges are reconciled and can rise.
  • The escalation. A 3 percent annual increase on a five year term adds roughly 12.6 percent to the rent by the final year.

Here is a hypothetical 2,000 square foot office at $4.00 per square foot per month, full service gross, with 3 percent annual increases (illustrative figures, not a market quote):

Item Amount
Year 1 monthly rent $8,000
Year 5 monthly rent, after four increases about $9,000
Total rent over 5 years about $510,000

That excludes utilities if they are billed separately, your own insurance, furniture and build-out. You are agreeing to a half million dollar obligation, not an $8,000 monthly bill.

3. Term, and how you get out

Landlords prefer long terms. In the example above, the landlord asked for ten years and the founder countered with five. For a startup, the exit terms matter as much as the length:

  • Early termination option: the right to end the lease early, usually for a fee.
  • Sublease and assignment rights: whether you can rent the space to someone else, or transfer the lease if you are acquired.
  • Expansion and renewal options: first right to neighboring space, and the right to renew at a defined rent.

Put the ones you need in the LOI. They are much harder to add once the lease draft arrives.

4. What will be in the lease but is not in the LOI

Some of the most expensive terms often do not appear in a short LOI template:

  • Security deposit or letter of credit. Early stage companies are often asked for several months of rent up front.
  • Personal guarantee. Some landlords ask founders to guarantee the lease personally. Know whether this is on the table before you agree to the rent.
  • Tenant improvements (TI). Who pays to fit out the space, how much, and who manages the work.
  • Use clause. What you are allowed to do in the space. This matters for labs, hardware and anything beyond desks.

If the landlord's template is silent on these, add them.

5. Which clauses bind you, and for how long

Read the LOI for any exclusivity period, confidentiality obligation or deposit, and note when each one ends. Check how long the offer stays open. And plan for the lease itself: our advisor's experience is that US commercial leases commonly run 30 to 70 pages, and much longer with complex provisions. A broker negotiates business terms. An attorney reviews legal terms. Budget for one lease review by a local real estate attorney.

Before you send: a checklist

  1. Ask every broker, in writing, whom it represents.
  2. Engage your own tenant broker before you send an LOI.
  3. Ask who pays each broker and how much.
  4. Confirm the unit of every number: per month or per year, gross or net.
  5. Calculate the total cost over the full term, including escalations.
  6. Put early termination, sublease and renewal terms in the LOI.
  7. Ask about the deposit, a personal guarantee, TI and the use clause now.
  8. Mark which LOI clauses are binding and when they expire.
  9. Book a local real estate attorney to review the lease once.

How JIGO can help

JIGO helps startups find office space across the US, with the deepest coverage in California and Washington, from 1 person offices to team offices, as well as small warehouses. We usually put together a shortlist of options within a day or two.

Tours, the LOI and the negotiation are handled by a licensed broker who represents you, not the landlord. Brokerage services are provided separately by Ryan Lee through eXp Commercial or another appropriately licensed broker, typically paid by the landlord. JIGO's search, options dashboard and coordination are free for startups through Series B. Broker license details are listed on jigo.ai.

If you are about to send an LOI, talk to us first.

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Please note

This article is not legal, tax or financial advice. Brokerage rules differ by state, and market practice, rents and commission levels change. The figures in the example are illustrative, as of October 2026. This article does not cover negotiation strategy in detail, retail or industrial leases, or brokerage rules outside California and Washington beyond the general points above. For a specific deal, consult a broker and an attorney licensed in the state where the property is.

References