What Is a Letter of Intent in Commercial Real Estate?

A letter of intent in commercial real estate is a short document that sets out the proposed business terms of a lease or property purchase before either side spends money drafting the definitive agreement. Most of it is non-binding, a good-faith proposal the parties intend to pursue, but a few clauses (confidentiality, exclusivity or a no-shop, and expense allocation) usually bind the moment it is signed. Its real job is to align both sides on price, term, and the major economics so the lawyers draft from a shared understanding instead of arguing from scratch.

Last updated July 2026.

Almost every commercial lease and property sale starts with a letter of intent, usually called an LOI or a term sheet. It is rarely more than two to four pages, and it is easy to treat as a formality. That is a mistake. The LOI is the baseline the final document is measured against, and the terms that quietly change between the LOI and the lease, a tenant improvement allowance, a renewal option, a shift from gross to net, are exactly the ones nobody re-checks unless they are tracking both documents on purpose.

What is a letter of intent in commercial real estate?

A letter of intent is a written summary of the deal terms the parties have agreed to pursue. For a lease, it states the proposed premises and square footage, the base rent and escalation schedule, the term and any options, the tenant improvement allowance, free rent and other concessions, and whether the deal is gross, modified gross, or triple net. For a purchase, it states the price, the earnest money deposit, the due diligence period, and the target closing. It is the handshake, written down, that a lease or purchase and sale agreement is then drafted from.

The LOI does two things at once. It confirms the parties are close enough on the big numbers to justify the legal expense of drafting, and it sets a few ground rules, like confidentiality and exclusivity, that apply while they negotiate. Everything else in it is a proposal.

Is a letter of intent binding?

Mostly no, but partly yes. A well-drafted commercial LOI says plainly that the business terms are non-binding and that neither party is obligated until a definitive agreement is signed. But certain provisions are almost always made expressly binding regardless of whether a deal closes: confidentiality, an exclusivity or no-shop period during which the seller or landlord will not negotiate with anyone else, allocation of each side's expenses, and the governing law. So the accurate answer is that an LOI is a non-binding proposal wrapped around a handful of binding clauses.

This split is where LOIs cause trouble. A landlord that signs a no-shop clause it assumed was aspirational cannot legally negotiate a backup tenant. A party reading the LOI has to know which clauses bind and which are proposals, which is exactly what a clean abstract of the document separates out.

What should a letter of intent include?

A lease LOI should cover the terms below. The table sorts them by whether they are typically proposals or binding on signature.

What is the difference between an LOI and a lease?

An LOI proposes terms; a lease imposes them. The LOI is short, mostly non-binding, and silent on the hundreds of operative and boilerplate provisions a lease contains, from maintenance and insurance to default remedies and assignment rights. The lease is the long, binding contract that governs the relationship for its full term. The LOI's value is that it locks in agreement on the economics so the lease negotiation can focus on the mechanics rather than reopening the rent.

Can you back out of a letter of intent?

Generally yes, as to the business terms, because those are non-binding. Either party can walk away from a proposed rent or concession before the lease is signed. What you cannot walk away from are the binding clauses: if you signed a no-shop, you are bound by it for its stated period even if the larger deal falls apart, and if you signed a confidentiality provision, it survives. Courts have also occasionally found that a party negotiated in bad faith after signing an LOI, so the safest practice is to honor the binding provisions and negotiate the rest in good faith.

How long is a letter of intent good for?

An LOI usually states its own expiration, often a short window of one to two weeks for the other side to sign, plus a period, commonly 30 to 60 days, to negotiate and execute the definitive agreement. If the definitive agreement is not signed by that date, the LOI lapses and the understanding, including any exclusivity, ends. Negotiating on a lapsed LOI is negotiating on nothing, which is why the expiration date is one of the fields worth capturing when you abstract the document.

Why compare the LOI against the final lease?

Because terms move between the two, and rarely in the tenant's favor. A TI allowance stated at 50 dollars per square foot in the LOI can come back at 40 in the lease. A renewal option that was floated can quietly disappear. A deal proposed as gross can be drafted as net, shifting operating costs onto the tenant and swinging the effective rent by dollars per foot per year. The only reliable way to catch the drift is to hold the two documents side by side, which is why teams increasingly abstract both the LOI and the executed lease into the same structured fields and compare them. You can do that in minutes with letter of intent abstraction, then check the numbers against the full field list in the commercial lease abstract template.

Once both sides agree and the LOI advances, the next step is executing the definitive document, and many teams now route the agreement for electronic signature to keep the deal moving. For a purchase, the LOI is followed by a binding contract; see purchase and sale agreement abstraction for what that document controls.

Who writes the letter of intent?

Usually the broker representing the party that initiates the deal, a tenant rep for a lease or a buyer's broker for a purchase, drafts the first LOI, and the other side's broker or attorney counters. On larger or more complex deals, attorneys draft the LOI from the start so the binding provisions are written carefully. Either way, the LOI reflects a negotiation, and the counter-LOIs exchanged are worth keeping, because they show how the terms moved before anyone drafted the lease.

The bottom line

A letter of intent is the term sheet that sets a commercial deal in motion: mostly a non-binding proposal on rent, term, and concessions, wrapped around a few clauses that bind on signature. Treat it as the baseline, not a formality. Capture what it proposes and what it binds, and check the lease or purchase and sale agreement against it when it arrives, because the terms that go missing between the LOI and the final document are almost always the ones worth the most money.