© February 27 2013 by David Kelman
Leasing commercial space in Ontario is in most cases a two-step process, for both landlords and tenants. Once the prospective tenant finds a suitable space, the tenant submits either an offer to lease or in some cases a letter of intent setting out the main business terms. Those terms are the "what-when-how much" of the lease: a description of the space, the rent, and the length of the lease in years, and any options to extend beyond the initial term. Other business terms that are most important to either side and most likely to be negotiated should find their way into a letter of intent or offer to lease.
There's no magic to the terminology of "letter of intent" versus "offer to lease". Generally though, letters of intent are drafted so that they are not binding on the parties but just a means for entering into more formal discussions leading to a binding lease; offers to lease are usually drafted so that once signed they become binding.
Once the business terms are on paper and agreed to by both sides, the parties move to the second stage of the process. The landlord will usually want a tenant to sign a long, standard form of lease that incorporates the business terms but also elaborates on many other areas of responsibility. These "master lease" forms are skewed in favour of the landlord and need to be reviewed carefully and if possible negotiated.
We recommend that our tenant clients exercise caution at the earliest stage, before any binding letter or offer is signed, so that at a minimum we can let the client know what to expect. Sometimes the long lease form can be negotiated in areas of importance to the tenant.
Sometimes the landlord refuses to negotiate, in which case a tenant would regret having signed a binding letter of intent or offer to lease and find themselves forced to accept terms in a lease they weren't prepared for.