A letter of intent is a handshake in document form. Both parties agree on the headline terms — rent, term, TI allowance, free rent — and the LOI memorializes that agreement as the basis for lease drafting. Most real estate professionals treat the LOI as the deal and the lease as the paperwork.
That assumption is wrong, and it is expensive.
What an LOI Contains
A standard commercial real estate LOI covers the material business terms agreed to before legal drafting begins:
- Premises identification (address, suite, square footage)
- Lease commencement and expiration dates
- Base rent and any fixed escalations
- Tenant improvement allowance (dollars per square foot or total amount)
- Free rent period (months and whether it applies to operating expenses)
- Renewal options (number, duration, rent mechanism)
- Termination rights if negotiated
- Personal vs. corporate guarantee terms
- Broker representation and commission acknowledgment
The LOI is intentionally non-binding on most of these terms. Its purpose is to align the parties enough to justify the time and cost of full lease drafting. But because it is non-binding, what ends up in the lease controls.
What Gets Lost in Drafting
The path from LOI to executed lease involves multiple handoffs: from the broker to the landlord's leasing team, from leasing to the landlord's attorney, who works from a standard form template. The tenant's attorney then redlines the landlord's form. This process rarely happens in a tightly coordinated way.
The result is that concessions negotiated between principals sometimes fail to make it into the lease draft — or make it in with modified terms. The modifications are often small enough that no one notices during lease review unless they are specifically comparing the draft against the LOI.
Common paths by which terms erode:
Template carryover. The landlord's attorney uses a standard form lease that was not updated to reflect the LOI terms. The TI allowance in the template is $25/SF. The LOI says $50/SF. If the attorney fails to update the template provision, the tenant who signs without comparing has just lost $25/SF.
Scope narrowing. The LOI grants a renewal option "at market rent with two years' notice." The executed lease grants the option "to the original named tenant only, at market rent determined by landlord's broker, exercisable only if tenant is not in default at time of exercise." The LOI term is still there; it has just been significantly narrowed.
Amendment cross-referencing. On complex deals where the LOI went through multiple rounds of negotiation, later LOI versions may not be reflected in the first lease draft. An attorney drafting from the first LOI draft will miss concessions obtained in subsequent rounds.
Verbal agreements not documented. Sometimes the broker obtained a verbal commitment from the landlord on an issue — a parking ratio, a signage right, an exclusivity clause — that was intended to be in the lease but never made it into the LOI or the draft.
How Abstraction Creates an Audit Trail
Abstracting the executed lease is the mechanism for comparing actual terms against negotiated terms. The process is straightforward:
Take the signed LOI and create a field-by-field checklist. Then abstract the executed lease using the same fields. Compare line by line. Every discrepancy between the two documents is a point for follow-up.
This is not a complex exercise. But it requires having done the abstraction at all. Most tenants sign the lease, file it, and never systematically extract and compare the terms against what was negotiated. That omission is how discrepancies persist for years without being discovered.
Real-World Discrepancy Examples
The reduced TI allowance. An office tenant negotiated a $50/SF tenant improvement allowance on a 10,000 SF suite. The LOI memorialized this. The lease, drafted from the landlord's standard form, contained a $40/SF allowance. No one caught it during lease review. The tenant signed. The discrepancy: $100,000.
The free rent period shortened. The LOI provided 6 months of free rent on a 5-year deal. The executed lease provided 4 months. The tenant's attorney reviewed the lease but did not run a side-by-side LOI comparison. The tenant occupied the space and began paying rent two months earlier than intended.
The renewal option rent changed. An LOI provided a renewal option at 95% of then-current market rent. The executed lease defined the renewal rent as fair market value "as determined by landlord" with no dispute mechanism. The subtle shift transferred significant pricing power to the landlord at renewal time.
The personal guarantee expanded. The LOI provided for a personal guarantee limited to 12 months of base rent. The executed lease contained a full-term, uncapped personal guarantee. The guarantor signed without reading the guarantee instrument against the LOI.
How to Use an Abstract to Audit the Lease
The comparison process works best when structured systematically rather than read-through by read-through.
Create a two-column comparison document. Column one: the LOI term. Column two: the lease provision. For financial terms, show the numbers. For non-financial terms, quote the specific language. Flag any discrepancy.
The comparison should cover at minimum:
- Rentable square footage and premises identification
- Commencement and expiration dates
- Base rent for every year of the term
- TI allowance: amount, deadline, and conditions
- Free rent: period, applicable months, whether operating expenses are also abated
- Renewal options: number, duration, rent mechanism, notice period, transferability
- Termination rights: trigger, notice, termination fee
- Guarantee: corporate vs. personal, capped vs. uncapped, burn-down provisions
- Parking ratio and cost
- Any use exclusivity or co-tenancy provisions discussed during negotiation
Items that were discussed but did not make the LOI deserve a final check — search the executed lease for any mention of them before concluding the review.
When to Do This Review
The comparison should happen before the lease is executed, not after. After execution, the leverage is gone. Before execution, a discrepancy is a negotiating point. The tenant's counsel presents the LOI alongside the draft, identifies the deviation, and requests a correction.
Most corrections at this stage are simple drafting fixes that the landlord's attorney makes without objection, because the deviation was usually unintentional. The landlord's attorney was working from a template; updating a number or adding a clause back in takes 10 minutes.
The few cases where the landlord pushes back reveal that the deviation was intentional — which is valuable information about the counterparty that the tenant now has before signing, not after.
Abstracting the lease before signature is not paranoia. It is the minimum standard for informed execution of a document that may govern six to ten years of occupancy costs.