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Letter of Intent (“LOI”) and Advice to Client Tenant Regarding Utilization of Land

Type Matter:  Letter of Intent (“LOI”) and Advice to Client Tenant regarding Utilization of Land
Issue:  Should a Broker include language in an LOI requiring certain use of the property and provide advice to their prospective Tenant Client about legal and allowable land use of subject property?
Answer:  No

Facts:  Broker represented client prospective Tenant searching for land to use as staging area for certain construction related equipment.  A Letter of Intent was provided including the necessary and desired use. A final lease was negotiated which did not include the use terms. Tenant took possession and was not permitted by the administrative authorities to utilize the property as desired. Tenant brought suit against Broker and Landlord.

Result:  This case was eventually settled by all parties. After months of discovery, depositions and negotiations, Tenant agreed to accept a greatly reduced loss, as compared with paying the entire year term of the lease. A contribution was necessary by Broker to effectuate the settlement.

Lesson:  Assuming an LOI contains a material term, important to the Broker’s client, that information and material term should also be included in the final, agreed upon Lease as well. Moreover, a Broker should not provide advice or information relative to the legal use of property. Rather, Broker should document having advised client to perform their own due diligence and research, investigate any and all pertinent information, including land use, if applicable.

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