Letter Of Intent (LOI)
What Is It?
A Letter of Intent (LOI) is a document used in various transactions that outlines a preliminary agreement between two parties before the deal is finalised. In Singapore, this is typically given by a would-be tenant to a landlord to express the former’s intention to rent a particular property from the latter.
Although not all property owners will ask for a Letter of Intent, some landlords won’t lease without getting one. As such, it’s best to prepare this document as it has a number of purposes.
First, it shows to the lessor that you’re serious about leasing the flat. Second, if the landlord accepted and signed the LOI, it means you’ve secured the unit and the owner can’t rent the property to another person, unless the validity of the document has lapsed and you no longer proceed to rent the property. Please note that after the Letter of Intent is signed by both parties, the Tenancy Agreement must be inked within seven days, unless the Letter of Intent stipulates a longer period
It's Part In The Rental Process
To help you understand the purpose of the Letter of Intent, please see the typical rental sequence below:
- Look for a suitable property to rent.
- Visit the properties. Once you find a flat and you’re okay with its amenities and price, draft a letter of intent.
- Give the Letter of Intent to the owner along with the “earnest deposit”, which is also known as “good faith deposit” or “booking deposit”.
- If the landlord accepts the LOI, it is his responsibility to provide you with a draft of the Tenancy Agreement within an agreed time (typically 3 days).
- The lessor and lessee then have seven days to sign the tenancy agreement, or more if indicated in the LOI. Once the tenancy agreement is signed by both parties, the tenant needs to pay the “security deposit”.
- If the landlord rejects the Letter of Intent, he needs to return the earnest deposit. But if the would-be tenant no longer wants to proceed with renting the flat, the good faith deposit is forfeited in favour of the property owner.
Check Who You’re Dealing With
Before giving the Letter of Intent and handing the earnest deposit, always make sure that the person you are transacting with is the actual landlord or an authorized agent.
To check, have the person you’re dealing with log into their HDB account if you’re renting public housing, or have them access Singapore Land Authority’s MyProperty portal to verify the properties owned by that person. You can also visit this webpage of the Inland Revenue Authority of Singapore (IRAS) to confirm, but this will cost S$2.50 for each successful enquiry.
Moreover, we strongly advise you to give the Earnest Deposit and all other subsequent rental payments directly to the property owner, instead of the real estate agent, as there have been cases where the latter absconded not only with the booking deposit, but also with the security deposit and rental money.
Another precautionary measure is to pay by bank cheque or online fund transfer rather than cash. This is because cash is hard to trace unless you get a valid receipt, and tracing where the money went is helpful in case of disputes, fraud, or in the event the transaction goes awry.
Earnest Deposit
When the Letter of Intent is given to the landlord, it is accompanied by an Earnest Deposit, a financial token that shows that you are serious in renting the property.
The good faith deposit given is typically equivalent to one month’s rent for a one-year lease, or two months’ rent for a two-year lease. After the rental contract or Tenancy Agreement is inked, the good faith deposit will typically be used as payment for the first month’s rent or as security deposit.
However, there is still a slim possibility that after the Letter of Intent is inked, the rental transaction doesn’t proceed and no Tenancy Agreement is signed.
While rare, it happens when the landlord and tenant cannot agree over the Tenancy Agreement. If this occurs the Earnest Deposit needs to be refunded to the would-be tenant. But if the lessee is the one who explicitly backed out of the transaction, then the booking deposit becomes non-refundable.
There is also a possibility that the property owner would refuse to give back the Earnest Deposit as it’s unclear which party is backing out of the rental deal. If this happens, you can seek the help of the Small Claims Tribunals. However, the laws in Singapore typically favour the property owner, so you will need to have a good reason or evidence in order to win the case and get back your Earnest Deposit.
To prevent such a scenario from happening to you, include clauses in the Letter of Intent (LOI) that specifies the terms, where the booking deposit must be returned to the would-be tenant or forfeited to the landlord.
Key Parts Of A Letter Of Intent (LOI)
The LOI lays down the terms, through which you intend to lease a flat. Basically, it is the initial fine print of the verbal agreement between the tenant and property owner. It’s strongly advised to include all clauses you want to include in the official Tenancy Agreement in the Letter of Intent.
Among others the LOI includes the particulars of the landlord and tenant as well as the property to be leased. It also states the terms of rental, including the agreed monthly payment, along with the date when lease starts and ends.
As said earlier, you can use this LOI template and may also incorporate additional clauses such as these below:
Diplomatic clause
This applies to tenancy agreements with tenure of over one year. Specifically, this clause safeguards the occupants in the event s/he gets fired or needs to go to another country during the duration of the lease. Typically, the diplomatic clause allows to tenant to terminate the rental contract as long as the property owner is informed in advance so that the landlord can find a replacement tenant.
Tenant’s specific requests
In the letter of intent, the potential lessee can include specific requests. For instance, the would-be tenant can ask the landlord to repair the air-conditioning unit or provide certain fittings or furniture. If the property owner accepts and signs the letter of intent, he needs to accomplish the occupant’s requests.
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