LOI Checklist: Provisions Every Landlord Must Review

A commercial LOI that misses even one critical provision can cost a landlord tens of thousands of dollars over the lease term. The LOI is where economic terms get locked in, and provisions that are omitted or poorly defined at this stage become exponentially harder to negotiate once attorneys are drafting the lease.

This checklist covers the 15 provision categories that every landlord should review and address in every commercial LOI, regardless of property type or deal size. For each category, we cover what to look for, what is considered market standard, and specific red flags that signal a problem.

1. Base Rent and Escalations

What to look for. The base rental rate per square foot, the measurement method (usable vs rentable), and the annual escalation structure.

Market standard. Escalations of 2.5% to 3.5% annually are standard in most markets. Some landlords prefer fixed dollar increases (e.g., $0.50 per square foot per year) for predictability. CPI-based escalations are less common in retail and office but still appear in industrial leases.

Red flags:

• Escalations below 2% annually (the landlord loses purchasing power to inflation)
• No escalation specified (defaults to flat rent for the entire term)
• CPI escalations without a floor (if CPI is negative, rent could decrease)
• Measurement based on usable square feet rather than rentable (landlord loses the common area load factor, typically 12% to 18%)

On a 5,000 rentable square foot space, the difference between usable and rentable measurement at $30 per square foot represents $18,000 to $27,000 in annual rent. Make sure the LOI specifies rentable square feet.

2. Lease Term and Renewal Options

What to look for. The initial lease term, number of renewal options, length of each renewal period, and the rent basis for renewals.

Market standard. Initial terms of 5 to 10 years for retail, 3 to 7 years for office, and 5 to 15 years for industrial. Renewal options of one to two periods at 5 years each. Renewal rent at the greater of the then-current rent plus escalation or 95% of fair market value.

Red flags:

• Renewal rent at "the same terms and conditions" (this locks in below-market rent if the market has appreciated)
• Renewal options without a notice deadline (tenant can exercise at any time, making it impossible for the landlord to plan)
• More than two renewal options (effectively gives the tenant control of the space for 20+ years)
• No landlord termination right for redevelopment

3. Security Deposit Structure

What to look for. The deposit amount, form (cash or letter of credit), burn-down provisions, and conditions for return.

Market standard. Two months of base rent plus NNN for local tenants, one month for national credit tenants. Letters of credit preferred for deposits above $25,000.

Red flags:

• Deposit equal to only one month of base rent for an unproven tenant
• No mention of form (cash vs LC)
• Burn-down schedule that starts too early (before year 3) or reduces too aggressively
• No language tying the deposit to all lease obligations, not just rent

For a deep dive on deposit structuring, see our Security Deposit Negotiation guide.

4. Operating Expenses / CAM / NNN

What to look for. The expense pass-through structure, administrative fee percentage, cap provisions, base year methodology, and exclusions.

Market standard. Full NNN pass-through with a 10% to 15% administrative fee. CAM caps, if granted, should be 4% to 5% annually on controllable expenses only, with taxes and insurance always excluded from any cap.

Red flags:

• Gross lease structure disguised as NNN (where the landlord is absorbing significant expenses)
• CAM cap below 4% (the landlord will absorb overages in any year with significant maintenance)
• Tenant excludes capital expenditures entirely from pass-throughs
• No gross-up provision for multi-tenant buildings with vacancy
• Management fee capped below market (reducing the landlord's property management cost recovery)

See CAM Clauses in LOIs for detailed guidance on structuring these provisions.

5. Tenant Improvement Allowance

What to look for. The dollar amount per square foot, what the allowance covers, disbursement timing, and treatment of unused allowance.

Market standard. TI allowance varies significantly by property type and market. Retail: $15 to $50 per square foot. Office: $30 to $80 per square foot. Industrial: $5 to $20 per square foot. The allowance typically covers construction costs, architectural fees, and permitting but excludes furniture, fixtures, and equipment (FF&E).

Red flags:

• TI allowance with no cap on scope (tenant uses allowance for work that does not benefit the landlord's property)
• No requirement that improvements become the landlord's property upon lease expiration
• Disbursement at lease signing rather than upon completion of work (landlord pays before verifying the work is done)
• Unused allowance paid to tenant in cash (converts a construction incentive into a rent concession)

6. Free Rent and Concessions

What to look for. The number of free rent months, whether abatement applies to base rent only or all charges, and clawback provisions.

Market standard. One month of free rent per year of lease term is a common starting point in competitive markets. Free rent should apply to base rent only, not NNN charges, so the tenant still pays operating expenses during the abatement period.

Red flags:

• Free rent on all charges including NNN (landlord subsidizes operating expenses during abatement)
• No clawback provision (if tenant defaults early, free rent is a gift with no recourse)
• Front-loaded concessions with no protection (all free rent in months 1 through 6 of a 5-year lease)
• Free rent during renewal periods (rare and almost always unjustified)

7. Use Clause Restrictions

What to look for. The permitted use description, prohibited uses, and whether the clause is restrictive or permissive.

Market standard. Specific enough to prevent undesirable uses but broad enough that the tenant can operate their business without constant landlord approval. Example: "General retail sales of clothing and accessories" rather than just "retail" (too broad) or "sale of women's shoes size 6 to 10" (too narrow to be enforceable).

Red flags:

• Use clause that says "any lawful purpose" (gives the tenant unlimited flexibility, prevents landlord from controlling tenant mix)
• Use clause that conflicts with other tenants' exclusivity provisions
• No mention of prohibited uses (liquor sales, adult entertainment, firearms, or other uses that could affect adjacent tenants or property insurance)

8. Assignment and Subletting

What to look for. Whether landlord consent is required, whether the original tenant remains liable, recapture rights, and profit-sharing on subleases.

Market standard. Assignment and subletting require landlord's prior written consent, not to be unreasonably withheld. Original tenant remains jointly liable. Landlord has the right to recapture the space in lieu of consenting. Landlord receives 50% of any sublease profit (the difference between sublease rent and the tenant's rent obligation).

Red flags:

• Assignment permitted without landlord consent (tenant can transfer to any entity regardless of creditworthiness)
• Original tenant released from liability upon assignment
• No recapture right (landlord cannot take space back when tenant wants to sublease)
• No profit-sharing on subleases
• Transfers to affiliates carved out broadly (tenant creates a shell entity and "assigns" to it, then sells the entity)

9. Exclusivity Clause

What to look for. The scope of the exclusive use, geographic boundaries, exceptions, and remedies for violation.

Market standard. Exclusivity should be defined narrowly by specific use, not by broad category. It should apply within the property only (not neighboring properties unless the landlord controls them). Remedy should be limited to rent reduction, not lease termination.

Red flags:

• Broad exclusivity language ("restaurant" instead of "fast-casual Mexican restaurant")
• Exclusivity that extends beyond the property boundaries
• Remedy includes lease termination or right to cease operations
• No exception for existing tenants, anchor tenants, or tenants whose exclusive predates this lease
• No sunset provision (exclusivity should be reconsidered at renewal)

10. Co-Tenancy Provisions

What to look for. Opening co-tenancy requirements, operating co-tenancy requirements, remedies for co-tenancy failure, and cure periods.

Market standard. Co-tenancy provisions are most common in retail leases, particularly in shopping centers anchored by major tenants. A reasonable co-tenancy clause might require that a specified anchor tenant be open and operating. If the anchor closes, the tenant pays a reduced rent (typically 50% to 75% of base rent) until the co-tenancy is satisfied or for a maximum period (usually 12 to 18 months), after which the tenant may terminate.

Red flags:

• Co-tenancy that names specific anchor tenants (if that specific brand leaves, the clause triggers regardless of what replaces them)
• Rent reduction to less than 50% of base rent during co-tenancy failure
• No cure period for the landlord to re-tenant the anchor space
• Co-tenancy based on occupancy percentage that is too high (e.g., 90% occupancy required, which is unrealistic for many centers)
• No cap on the co-tenancy remedies period

11. Continuous Operation

What to look for. Whether the tenant must remain open and operating throughout the lease term, minimum operating hours, and remedies for violation.

Market standard. Tenant shall operate continuously during normal business hours, excluding closures for remodeling not to exceed 14 days per year. Violation triggers additional rent equal to 25% to 50% of base rent for each month the space is dark.

Red flags:

• No continuous operation requirement (tenant can go dark and pay rent on empty space)
• No minimum operating hours specified
• No financial penalty for going dark
• Continuous operation tied only to a subjective "good faith effort" standard

12. Holdover Provisions

What to look for. The holdover rent rate, the tenancy type during holdover, and the landlord's termination rights.

Market standard. Holdover rent at 150% of the then-current base rent plus all additional rent, on a month-to-month basis terminable by landlord on 30 days' notice. Tenant also liable for consequential damages if the holdover prevents landlord from delivering the space to a new tenant.

Red flags:

• No holdover provision (defaults to state law, which often allows month-to-month at the same rent)
• Holdover at 100% to 125% (insufficient penalty to motivate timely surrender)
• No provision for consequential damages
• Holdover language that creates an automatic renewal rather than a month-to-month tenancy

13. Default and Cure Periods

What to look for. Monetary default cure periods, non-monetary default cure periods, grace periods, and landlord remedies.

Market standard. Monetary default: 5 to 10 day cure period after written notice. Non-monetary default: 30 day cure period after written notice, with extensions for defaults that cannot reasonably be cured within 30 days provided the tenant is diligently pursuing a cure.

Red flags:

• Monetary cure period longer than 10 days (tenant effectively gets free float on the landlord's money)
• Non-monetary cure period longer than 30 days with no limits on extensions
• No right to terminate for chronic late payment (tenant pays late every month but always within the cure period)
• Requirement that landlord provide multiple notices before exercising remedies

14. Personal Guaranty

What to look for. Whether a personal guaranty is required, who provides it, the amount, the duration, and the structure (full vs. limited vs. declining).

Market standard. Required for local tenants, single-location operators, and entities with limited capitalization. Full guaranty for lease years 1 through 3, reducing to 50% for years 4 through 5, with release after year 5 if no defaults have occurred. National credit tenants with investment-grade ratings typically do not provide personal guaranties.

Red flags:

• No personal guaranty for a tenant entity with less than 12 months of base rent in liquid assets
• Guaranty limited to an amount that does not cover the landlord's actual exposure
• Immediate release upon assignment (defeats the purpose of the guaranty)
• No requirement that guarantor provide updated financial statements

15. Options: ROFR, ROFO, Expansion, Termination

What to look for. Right of first refusal on adjacent space, right of first offer, expansion options, and early termination rights.

Market standard. Options are valuable rights that limit the landlord's flexibility, so they should be granted sparingly and with clear conditions. A right of first offer (landlord must offer the space to the tenant before marketing to third parties) is less burdensome than a right of first refusal (tenant can match any third-party offer). Expansion options should specify a fixed timeframe and rent basis. Termination options should require substantial penalties (typically 3 to 6 months of unamortized concessions plus a termination fee).

Red flags:

• ROFR on multiple adjacent spaces (effectively gives the tenant veto power over the landlord's leasing program)
• Expansion option with below-market rent (locks in favorable pricing for future space)
• Termination option with insufficient penalty (tenant can walk away cheaply)
• Options that survive assignment (new tenant inherits valuable rights that were negotiated based on the original tenant's creditworthiness)

How Provision Priorities Change by Property Type

Not all 15 provisions carry equal weight on every deal. The property type determines which provisions need the most attention and where the highest financial risk lies.

Retail LOIs demand the most comprehensive coverage. Exclusivity, co-tenancy, continuous operation, and use clause provisions are all critical because retail properties depend on a curated tenant mix and active storefronts. A missing continuous operation clause in a retail LOI is a far more expensive oversight than in an industrial lease. Restaurant LOIs add additional layers including exhaust systems, grease trap maintenance, and higher insurance minimums.

Office LOIs place greater emphasis on the TI allowance, the measurement method (usable vs rentable square footage), and renewal terms. Office tenants typically invest heavily in their buildout, which creates leverage for longer-term renewal options. The key risk for landlords is granting renewal rights at below-market rates that lock in unfavorable economics for another 5 to 10 years.

Industrial LOIs require careful attention to the use clause, environmental provisions, and yard storage rights. Industrial tenants may use the premises for manufacturing, distribution, or storage of hazardous materials, and each use carries different insurance, compliance, and restoration obligations. The security deposit calculation should account for the cost of environmental remediation if the tenant's operations contaminate the site, which can run into the hundreds of thousands of dollars.

Medical office LOIs must address compliance with healthcare regulations, specialized HVAC requirements for medical environments, after-hours access for emergency practices, and signage rights for multiple practitioners within a single suite. The TI allowance for medical space is typically 50% to 100% higher than general office due to the cost of plumbing, specialized electrical, and regulatory compliance buildout.

Common Patterns in Weak LOIs

After reviewing thousands of commercial LOIs, certain patterns emerge that consistently signal trouble.

The two-page LOI. An LOI that covers only rent, term, and TI in a handful of bullet points is not efficient. It is incomplete. Every provision that is absent from the LOI becomes a negotiation point during lease drafting, where the tenant's attorney has every incentive to fill the gaps with tenant-favorable language. A thorough LOI saves time and legal fees in the long run by resolving issues upfront.

The "standard form" LOI. When a tenant's broker sends an LOI described as their "standard template," treat it with the same scrutiny you would give any other document. Standard templates are drafted by the tenant's attorney to protect the tenant. They are a starting point for negotiation, not a final document.

The missing provision pattern. LOIs that address the headline economics (rent, term, TI, free rent) but omit protective provisions (holdover, assignment, continuous operation, recapture) are the most dangerous. The economic terms look reasonable, so the landlord signs quickly. The missing provisions create exposure that only materializes when something goes wrong, at which point it is too late to fix.

The "subject to lease" disclaimer. Some LOIs include language stating that all terms are "subject to negotiation of a mutually acceptable lease." While this language is technically accurate, it can undermine the LOI's effectiveness as a commitment device. If every term is subject to renegotiation, the LOI provides no real framework for the lease. Consider limiting the "subject to lease" language to non-economic terms while specifying that the economic terms in the LOI are binding on both parties.

The copy-paste from the last deal. Landlords who reuse LOI language from previous transactions without updating the terms for the current market risk leaving money on the table or creating provisions that do not apply to the new deal. A holdover rate that was appropriate for a 2023 transaction may be below market in 2026. A TI allowance that was competitive for an office deal is completely wrong for a restaurant build-out. Every LOI should be reviewed against current market data for the specific property type, location, and tenant profile. What worked six months ago may not work today, and the only way to know is to benchmark against current market data for every new deal.

Using This Checklist

This checklist is designed to be used on every LOI, whether it is a 2-page bullet-point summary or an 8-page detailed term sheet. Not every provision will be relevant to every deal, but reviewing each category ensures you do not miss something that matters.

The most dangerous LOI is the one that looks clean at first glance. A short, simple LOI often means that critical provisions are simply absent rather than thoughtfully omitted. Silence in an LOI is not neutral. It means the provision will either default to whatever the state statute provides (which may not favor you) or become a negotiation point during lease drafting when the tenant's attorney adds language that favors their client.

For a discussion of the most costly mistakes landlords make at the LOI stage, see 10 LOI Mistakes That Cost Landlords Thousands. And if you are new to the LOI process, start with What is LOI Redlining? for a complete overview.

CREagentic automatically checks every LOI against all 15 of these provision categories, flagging missing provisions, below-market terms, and potential risks in 60 seconds for $2 per document.