What is a Letter Of Intent (LOI)?
A letter of intent (LOI) indicates your intention to establish a tenancy agreement with your landlord.
Although an LOI holds no legal obligation and not every landlord may require one, its submission remains significant as it signifies your commitment to considering no other rental options.
Similarly, upon receiving a duly signed LOI from you, your landlord will refrain from seeking other potential tenants.
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What terms are in a Letter Of Intent (LOI)?
A LOI typically encompasses provisions commonly addressed in a tenancy agreement, encompassing aspects like lease terms, security and good faith deposits, as well as a diplomatic clause. This is because the LOI signifies a willingness to engage in the tenancy agreement and therefore should mirror the terms that will be included within the agreement.
The following are some of the clauses that are typically included in the LOI:
- Lease terms: The LOI stipulates the lease terms, which encompass rental amount and lease duration. Usually, the lease duration spans two years, with leases below 12 months being uncommon.
- Security deposit: The LOI also outlines the payment of a security deposit.
Typically, the security deposit amounts to one month’s rent for a one-year lease and two months’ rent for a two-year lease. This security deposit may serve as compensation for property damage due to negligence or early lease termination.
- Good faith deposit: Paid upon submitting the signed LOI, the good faith deposit demonstrates your genuine interest in renting the property. Generally, this amount equals one month’s rent for a one-year lease and two months’ rent for a two-year lease.
- Diplomatic clause: The diplomatic clause allows you to terminate the rental contract before its conclusion by providing sufficient notice, typically at least two months. This clause is applicable for leases surpassing 12 months.
If you’re an expatriate, it’s advisable to express your desire for this clause within the LOI in case circumstances require you to exit Singapore and terminate your lease prematurely.
- Specific requests: Given that the LOI reflects agreed-upon terms between you and your landlord, it’s crucial to ensure that clauses intended for inclusion in the tenancy agreement are present in the LOI.
Moreover, the LOI accommodates any specific requests you may have concerning the property, such as furniture-related preferences. For example, you might request your landlord to replace existing furniture that’s in subpar condition.
Good faith deposit vs security deposit – What’s the difference?
Despite apparent similarities, notable differences exist between the good faith and security deposits:
- Firstly, the two deposits serve distinct purposes. The security deposit functions as compensation for property damage due to negligence or early lease termination. Conversely, the good faith deposit signals your intention to lease the property from the landlord.
- Secondly, the timing of payment differs for the two deposits. The good faith deposit is due upon LOI signing, while the security deposit is required upon entering the tenancy agreement.
It’s important to note that the good faith deposit may become part of the security deposit or a rental advance when signing the tenancy agreement. In such instances, only the remaining balance of the security deposit needs to be paid, if applicable.
Additionally, the security deposit remains held throughout the lease and is refundable at lease conclusion, provided there are no grounds for the landlord to retain it.
Can I back out of signing my Letter Of Intent (LOI)?
Should you alter your decision regarding renting the property after submitting your signed LOI, your good faith deposit will be forfeited.
