A document prepared by a prospective lessor and presented to a prospective lessee that sets forth the lessor’s commitment to provide the proposed lease is a commitment letter.  A commitment letter generally provides the same information found in the lease proposal and other details that will ultimately appear in the lease agreement, such as insurance requirements, casualty liabilities, default remedies, choice of law and jurisdiction, the allocation of any tax benefits, tax indemnities, variation clauses, and other terms of importance.  They are rarely used for retail leases.

Request for Proposal → Lease Proposal → Commitment Letter → Lease Agreement
A prospective lessee to prospective lessors Prospective lessors to the prospective lessee A potential lessor to the prospective lessee Between the lessor and the lessee

A commitment letter differs from a proposal letter in that it is intended to legally bind the parties to the transaction on its basic terms and conditions, subject to the fulfillment of such preconditions as successful negotiation and execution of satisfactory documentation, a satisfactory credit review, and approval and other conditions, such as guarantees and collateral.  The commitment letter may also list the documents that need to be provided and executed at the closing, such as Commercial resolutions, legal opinions of counsel, security agreements, mortgagee and landlord waivers in the case of real estate as well as any required credit enhancements, such as guarantees, letters of credit and personal property collateral subordinations.

Commitment letters commonly specify a drop-dead date, which is the date by which a lease transaction must close, with all documents executed, all equipment delivered and accepted, all funding provided, and all other aspects of the transaction completed, failing which the lessor’s commitment is automatically cancelled and the transaction process is terminated.  Large, complex transactions may have a schedule of different drop-dead dates.

Commitment → │Drop-Dead Date

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