Real Estate Talk:
Letter of intent

Now that a commercial location has been found, it’s time to discuss a lease offer

By Joseph Marovitch

January 29, 2026

In the last issue, we discussed commercial financing and the search for a suitable, advantageous location for a retail space to be used as a bakery. Now that a location has been found, it’s time to discuss a lease offer. Note that the word is ‘discuss’ because there are several steps prior to signing a final lease.

Step one is to prepare and submit a written offer to the lessor, either in the form of a letter of intent (LOI) or through a commercial broker and a government document called a promise to lease. If the potential lessee is experienced with lease negotiation and terms, then a letter of intent may suffice. If the applicant is not familiar with commercial leases, it is advisable to engage an experienced commercial broker to provide expert guidance and prepare the offer. Note that the lessor pays the broker, not the potential lessee.

If the potential lessee is experienced with lease negotiation and terms, then a letter of intent may suffice. If the applicant is not familiar with commercial leases, it is advisable to engage an experienced commercial broker to provide expert guidance and prepare the offer.

Lessor: the one renting – Lessor: the one who wants to rent

In professional circumstances, upon visiting a commercial space for the first time, either a listing broker (the broker representing the lessor) or the lessor in person would show the space, describe all the features of the space, such as central air conditioning, who is responsible for snow removal, landscaping, common area maintenance, where the garbage disposal and recycling are placed. They will also explain the requirements for an offer to lease. Note that if a lessor does not explain these items, a professional broker will ask all these questions. Standard offers include the following:

Letter of intent or promise to lease possible requirements:

• Name, address, phone number and email of the applicant and/or corporation that will be leasing
• Amount of rent offered
• Indication of the use of the space Eg: A hair salon, bakery, clinic, clothing store, etc
• Indication of the space or unit to be rented
• Fixturing period – the time to prepare the space prior to the business opening
• Commencement date of the lease
• End date of the lease
• Renewal option with a number of additional years
• Name of person or corporation guaranteeing the lease
• Credit check, references from previous lessors and/or a bank letter stating how long the applicant has been with the bank, that the applicant is in good standing and has the necessary funds to cover the lease
• A deposit equivalent to the first month’s gross rent is to be submitted with the offer, held in escrow, and applied to the first month’s rent until the signing of the lease or returned in the event a lease is not signed

Remember, this is only an offer and not the lease itself. This offer is used by the lessor to determine whether the rent amount is acceptable, whether the applicant is properly financed, and whether the use of the space is viable and does not conflict with other businesses or the character of the space or building.

If the offer is acceptable, the credit check is 650 or higher, the references check out, and the business is suitable for the location and does not conflict with any other business, the next step is a meeting with the lessor or their representative, often called a leasing director or Vice President of leasing.

‘This offer is used by the lessor to determine whether the rent amount is acceptable, whether the applicant is properly financed, and whether the use of the space is viable and does not conflict with other businesses or the character of the space or building.’

In the meeting, the discussion may include the applicant’s business experience, their concept, market plan and financing. Following the preliminary discussion, the next topic will be the terms of the lease to be signed; the base rent, the additional rent including taxes, operating expenses (OPEX), the annual rent increases, the security deposit (cash and/or collateral) and terms, guaranties, insurance requirements, rules of the space including opening times, closing times, fixturing and what is or is not permitted in the space and other issues depending on if the space is a single unit, building or shopping center.

If there are issues that may be a non-starter for the potential lessee or the lessor, then negotiation ceases, and the deposit is returned. If all issues are agreed to, the next step is for the lessor to prepare the lease, after which the applicant has a certain number of days to examine it or have their lawyer examine it.

The information in these articles is a summary. Should you have questions, comments or wish to discuss further, please refer to the comments section at the bottom of the page or contact me directly. As well, to view past articles, click here.

Next week, we will look at the lease, possible issues and final signing.

State of the market

The Bank of Canada recently announced it is holding interest rates at 2.35%, which is positive for buyers. Montreal remains one of the most resilient real estate markets among Canadian cities, with rising prices and increasing demand. The Canadian Real Estate Association (CREA) recently projected an increase in home sales across Quebec, especially in Montreal, driven by pent-up demand and low interest rates. The forecast is for continued growth through 2027 due to limited supply, increased first-time homebuyers, investors from outside Quebec seeking greater value in Quebec than in the rest of Canada, and relative economic stability.

However, global circumstances are fluid and ever-changing, with direct effects on the Canadian economy and real estate market. Last week, the U.S. threatened Canada with a 100% tariff on all goods and services if Canada made a deal with China. The U.S. threatened Iran with war if they do not concede to U.S. demands to limit its nuclear program, and is still trying to expropriate Greenland. Some of these goals are not terrible in themselves; however, how they are approached is the issue. Using threats and the carrot-and-stick approach rather than professional diplomacy may create larger problems for the U.S. and the world than using actual professional diplomacy.

‘… Tiff Macklem, governor of the Bank of Canada, announced a possible shock to the Canadian economy due to U.S. trade policy, the president’s threats to the U.S. Federal Reserve and its chairman, Jerome Powell, for not reducing interest rates, and increased global conflicts.’

In an article published in today’s Reuters news agency, the Canadian government is aware of all these issues and how they can effect the market, which is why today, January 29, Tiff Macklem, governor of the Bank of Canada, announced a possible shock to the Canadian economy due to U.S. trade policy, the president’s threats to the U.S. Federal Reserve and its chairman Jerome Powell for not reducing interest rates, and increased global conflicts. Additionally, he revised the Canadian economic forecast downward. As such, investment firms are forecasting interest rate hikes in 2026 and 2027.

The future, however uncertain, always presents opportunities for buyers, sellers and investors. If the current U.S. government remains in power, turmoil persists, and all these issues come to pass, property values may decrease, giving investors and buyers the opportunity to purchase property at discounted prices. This scenario also means buyers and potential sellers will have to hold on to their properties till events calm down.

If all this drama and turmoil cease, prices and inventory will rise, hesitant buyers will enter the real estate market, and both global and Canadian real estate markets may normalize, balance, and move in a positive direction. Chances are increasing that these issues may soon cease and repair themselves, in this writer’s opinion, based on current events.

Have a great week.

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Other articles by Joseph Marovitch