What Is a Letter of Intent (LOI) in Commercial Real Estate?

Put Simply

An LOI, or Letter of Intent, is a short document that says "I want to buy (or lease) this property, and here are the terms I'm proposing." It's written before the full purchase contract or lease, while you're still agreeing on the basics. Most LOIs are non-binding, meaning neither party is legally locked in to close the deal. But they set a clear framework, price, timeline, key conditions, so both sides can agree on the big picture before paying attorneys to draft full legal documents.

Think of it as a handshake agreement in writing. It prevents misunderstandings, saves time, and filters out parties who are not genuinely aligned on terms, before significant professional fees are incurred on either side.

The CCIM Perspective

The Letter of Intent serves as the economic framework for commercial real estate transactions, establishing key terms before committing either party to the substantial legal and advisory costs of drafting a full Purchase and Sale Agreement (PSA) or lease. In acquisition transactions, the LOI typically outlines: purchase price, earnest money structure (amount, timing, and when it goes "hard," meaning non-refundable), due diligence and inspection period length, financing contingency, seller representations and disclosure requirements, and proposed closing timeline.

In leasing, the LOI covers: base rent, annual escalation structure, lease term, Tenant Improvement (TI) allowance, free rent period, delivery condition, renewal options, and any expansion or termination rights. Each of these terms has meaningful economic impact on both parties, and resolving them at the LOI stage, rather than in contract negotiation, prevents the most common deal failures.

Though LOIs are typically non-binding as to the ultimate transaction, certain provisions are often drafted as binding obligations: confidentiality requirements, exclusivity (no-shop) clauses, and process terms. A seller who grants exclusivity is contractually restricted from entertaining competing offers during the stated period, which has real value and should be negotiated explicitly, with defined timeframes and remedies for breach.

The strategic use of the LOI creates negotiating discipline and controls the process. A buyer who submits a comprehensive, well-structured LOI early signals seriousness and controls the drafting narrative, an advantage in competitive situations. Experienced advisors resolve the commercially sensitive points (price, contingency structure, TI allocation) at the LOI stage so that legal counsel is engaged on a document both parties are already aligned to execute. Deals that die in contract redlines over commercial terms that should have been resolved in the LOI represent a failure of advisory process, not legal complexity.