If you’re looking to lease space in Calgary—or anywhere in Alberta—you’ll often come across two key documents: the Letter of Intent (LOI) and the Lease Agreement. While they may seem similar, they serve very different purposes in commercial leasing.
Understanding the difference is essential for tenants and landlords alike, especially since the former is usually meant to be a tool during the lease negotiations process, while the latter is a legally binding contract.
What Is a Letter of Intent (LOI)?
A Letter of Intent is a short document that outlines the main business terms for a potential lease. It’s typically intended to be non-binding, giving both landlord and tenant a chance to confirm they’re aligned before investing in drafting a full lease.
However, here’s the important part: not all LOIs are automatically non-binding.
- If an LOI is written with wording that shows an intent to be bound (e.g., “this agreement is binding”), Canadian courts have sometimes treated them as enforceable.
- To avoid confusion, most LOIs include disclaimers making it clear that they are not binding except for specific clauses (like confidentiality or exclusivity).
Common items in an LOI:
- Parties involved (landlord and tenant)
- Location and square footage of the space
- Lease term and renewal options
- Base Rent and Additonal Rent (including Operating Costs)
- Permitted use (e.g., retail, office, restaurant)
- Build-out obligations or tenant improvement allowances
- Deposit expectations
An LOI is like a “roadmap” that sets expectations and ensures both sides have a clear understanding of the same deal.
LOI vs OTL: Important Distinction of an Offer to Lease
In Alberta, an Offer to Lease (OTL) is not the same thing as an LOI.
- An OTL is often binding once accepted and can create legal obligations for both parties, even before the formal lease agreement is signed.
- An LOI is usually intended to be non-binding, more of a preliminary negotiation summary.
Because the two terms are sometimes confused, it’s important to be clear in writing which type of document you are signing.
What Is a Commercial Lease?
A Lease Agreement is the full, legally binding contract between landlord and tenant. It governs the tenant’s right to occupy and operate their business in the space for the term of the lease.
Unlike an LOI, the lease includes detailed financial and legal provisions that protect both sides.
Common items in a Lease:
- Rent structure (base rent, operating costs, utilities)
- Insurance requirements
- Repair and maintenance responsibilities
- Rights of renewal or expansion
- Default and remedies for breach
- Assignment and subletting rules
- Dispute resolution mechanisms
The length of a commercial lease, or Lease Agreement, can vary widely:
- Small office or retail leases may be 10–15 pages.
- Typical shopping centre leases run 20–50+ pages.
- Large corporate or institutional leases can exceed 100 pages.
Key Differences Between LOI and Lease
| Aspect | Letter of Intent (LOI) | Lease Agreement |
|---|---|---|
| Purpose | Outlines deal terms for the lease negotiation process | Legally binding contract between Tenants and Landlords |
| Binding? | Typically non-binding, but may be enforceable if stated as binding | Always fully binding once signed |
| Length | Usually 1–5 pages | 10–100+ pages, depending on complexity |
| Focus | High-level business terms | Legal, financial, and operational details |
| Timing | Early in the negotiation process | Final step before possession |
| Prepared by | Broker, landlord, or tenant | Lawyers for both landlord and tenant |
Why Both Documents Matter
- LOI: Helps align on key deal terms during the lease negotiation process, saving time and reducing unnecessary legal costs on a binding Lease Agreement.
- Lease Agreement: Provides the enforceable framework that governs the relationship and protects both landlord and tenant throughout the length of the term of the Lease Agreement.
Common Misconceptions
- “LOIs are never binding.”
Not true. LOIs are typically non-binding, but might be if stated so, which would become enforceable in Canada. - “LOIs and OTLs are the same.”
In Alberta, they are different. An OTL is often binding, while an LOI is usually just a negotiation tool. - “A lease is just a longer version of the LOI.”
False. The lease, or Lease Agreement, is a detailed legal contract that covers obligations and remedies far beyond what’s in an LOI.
Final Thoughts
The main difference between a Letter of Intent and a Lease Agreement comes down to intent and enforceability.
- An LOI is a negotiation roadmap and is non-binding in most cases.
- A Lease Agreement is the final, legally binding contract that secures rights for years to come.
If you’re entering into a commercial lease in Calgary, make sure your LOI is carefully worded to reflect intent—and always have an experienced commercial real estate broker review your LOI, OTL, and Lease Agreement before signing.
Looking for experts in commercial leases in Calgary? Contact the Leaseco Realty team, that has decades of comnbined commercial real estate experience, to make sure you’re protected during your lease negotiations.