The Letter of Intent - A Checklist of Key Provisions for Start-Up Companies

Sep 16, 2026

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A practical checklist guides start-up companies through the lease letter of intent stage, emphasizing why early term-sheet negotiation prevents costly disputes later. It explains how the letter of intent accelerates agreement, clarifies “must have” economic and operational terms, and reduces uncertainty before signing. The checklist covers core economic items (rent, escalations, security deposit, allowances, expense allocation, guarantees) and key premises terms (rentable space, special uses, improvements, construction timing, and remedies for delivery delays).

LanguageEnglish

CategoryLetters

FormatPDF

Pages4

Reading Time2 min

AccessFree to download

Economic Terms

The Premises

Construction and Delivery Remedies

1 The Letter of Intent: A Checklist of Key Provisions for Start-Up Companies By Pamela V. Rothenberg and Christopher M. Iavarone* | Womble Carlyle Sandridge & Rice, LLP For a start-up company, signing a lease for the first time is a big step. It signifies that the company has reached a growth milestone and is ready (and can afford) to move its operations from a home, garage or other temporary location into more “permanent space.” However, the company’s excitement about achieving this objective should not blur the fact that a lease will impose a meaningful and potentially long term financial burden on the company. Real estate obligations such as leases are typically the second largest line item on a company’s balance sheet. Consequently, the terms of a lease should be carefully reviewed and negotiated with the landlord. The first critical step in the leasing process is the letter of intent, and it should not be overlooked by the company in its haste to relocate into new space. A letter of intent or term sheet is a fairly straightforward document that outlines the business and other material terms of a lease. When a tenant and landlord take the time to negotiate and agree upon the terms of a letter of intent, they expedite the leasing transaction by avoiding protracted, contentious, and expensive negotiation of key lease terms. Using a letter of intent allows the parties to flesh out differences of opinion on the most important terms of their lease before they spend time and money on the lease itself. More importantly from the start-up company’s perspective, by taking time at the letter of intent stage to delineate its “must have” terms of the lease, the company enhances its ability to achieve key economic and other material lease terms. Included below is a checklist of the key terms a start-up company should endeavor to include in any letter of intent for a lease. Economic Terms: q Lease term. q Annual and monthly base rent, the rate at which rent will escalate during the lease term, the amount of advance rent, and any associated rent abatement. q The amount of the security deposit, whether the security deposit may be posted in the form of a letter of credit, and whether the security deposit will “burn off” (i.e., be reduced) over time based on the tenant’s performance of its obligations under the lease. q The amount of any test-fit allowance and tenant improvement allowance landlord will make available to the tenant to plan and build out tenant’s premises, and whether the tenant has a right to apply any portion of the tenant improvement allowance against other expenses, such as furniture, fixtures and equipment, cabling, moving expenses or future installments of base rent payable under the lease. q The tenant’s proportionate share of the building’s expenses (i.e. , property taxes, insurance premiums, and building operating expenses including common area maintenance charges) that the tenant will bear on either a full service or triple net basis. Building expenses should be grossed up to 95-100% occupancy. 2 m If the lease is full service, the letter of intent should specify the base year for calculating tenant’s future share of the building’s expenses. m Where feasible, the tenant should request an annual cap on increases in controllable operating expenses tobe borne by the tenant and a cap on the management fee to be charged by the landlord’s property manager. m Although not included in a letter of intent, it is best practice to ask the landlord for an estimate of the anticipated amount of additional rent that the tenant will be required to pay to cover operating expenses during the first year of the lease term. This will enable the tenant to prepare a budget for its total leasing costs. q Whether or not any principals or affiliates of the tenant will be required to guarantee the tenant’s obligations under the lease, including with any terms limiting or terminating the guaranty after the tenan

FAQs

Why is a letter of intent important for a start-up company entering a lease?

It clarifies business and material lease terms early, helping parties avoid prolonged, contentious, and expensive negotiations. It also helps the start-up specify “must have” terms that improve its ability to achieve key economic and operational objectives.

What economic terms should be included in a lease letter of intent?

The checklist includes lease term, base rent and escalation rate, advance rent, rent abatement, security deposit amount and structure, test-fit and tenant improvement allowances, expense allocation (including common area maintenance), and any annual caps and landlord management fee limits.

What premises and construction details should the letter of intent address?

It should cover rentable square footage, special uses or security needs, tenant-specific infrastructure requirements, responsibility for new improvements, construction tender and substantial completion timing, and remedies such as rent abatement or termination if delivery is delayed.

Sep 16, 2026

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