How to Draft a Strong Letter of Intent (LOI) for a Commercial Property Deal
- Tom
- 7 days ago
- 5 min read
When entering into a commercial property deal, the Letter of Intent (LOI) serves as a critical first step. Though non-binding in most cases, an LOI lays the foundation for a successful transaction by outlining the essential terms before the formal agreement is drawn up. At The Real Estate Law Firm, we guide clients through the LOI process to ensure their interests are protected from the outset.
In this blog, we’ll explore the key components of a strong LOI, common pitfalls to avoid, and how an experienced real estate attorney can add value throughout the process.
What Is a Letter of Intent (LOI)?
A Letter of Intent is a preliminary agreement that sets forth the general terms and conditions under which the parties intend to negotiate and finalize a commercial property deal. It’s not usually legally binding, but it signals serious interest and acts as a negotiation blueprint.
In commercial real estate, LOIs are commonly used in:
Leasing transactions (e.g., office, retail, or industrial space)
Property sales and acquisitions
Joint ventures or partnerships involving real estate assets
While it’s tempting to view the LOI as “just a formality,” vague or poorly written LOIs can lead to confusion, delays, or even deal failure. That’s why The Real Estate Law Firm emphasizes drafting LOIs with clarity and precision.
Why Drafting a Strong LOI Matters
A well-drafted LOI:
Clarifies deal expectations early
Prevents misunderstandings
Speeds up the due diligence and contract stages
Builds mutual trust between the parties
Serves as a reference point in later negotiations
Even though many LOIs include disclaimers noting that they are non-binding, certain clauses—like confidentiality, exclusivity, and access rights—can be legally enforceable, making careful drafting essential.
Key Elements of a Strong Commercial Property LOI
Here are the essential components every strong LOI should include:
1. Identification of Parties
Clearly name the buyer/tenant and seller/landlord, including their legal entities and any authorized representatives.
2. Description of the Property
Provide the property address, parcel number (if available), and any attachments like site plans or zoning info.
3. Purchase Price or Lease Terms
Specify the proposed purchase price or base rent, along with escalation clauses, security deposits, and rent commencement dates, if applicable.
4. Financing Terms
If the deal involves financing, outline whether it's cash, third-party financing, or seller financing. Include the expected loan amount, contingencies, and timelines.
5. Due Diligence Period
State how long the buyer or tenant has to conduct inspections, review title reports, and complete any necessary evaluations before becoming legally obligated.
6. Closing Date or Lease Commencement
Provide a target date for closing or lease commencement, with flexibility built in if needed.
7. Exclusivity/No-Shop Clause
If applicable, include a clause preventing the seller or landlord from negotiating with other parties for a specified time.
8. Confidentiality
Many LOIs contain provisions that prevent either party from disclosing deal terms to third parties.
9. Contingencies
Detail any conditions that must be met, such as zoning approvals, financing approval, or corporate board approval.
10. Binding and Non-Binding Provisions
Clearly state which parts of the LOI are binding (e.g., confidentiality, access rights) and which are non-binding (e.g., price, intent to lease).
Tips for Drafting an Effective LOI
Be Clear and Specific
Ambiguity leads to misinterpretation. Use precise language and define all terms.
Avoid Over-Commitment
Do not promise more than you intend to deliver. LOIs are meant to express intent, not to lock you into final terms prematurely.
Involve Legal Counsel Early
Having The Real Estate Law Firm review or draft your LOI ensures it aligns with your business goals and legal interests.
Account for Deal Complexity
The more complex the deal (e.g., multi-tenant buildings, ground leases, environmental issues), the more detailed your LOI should be.
Revisit and Update as Needed
If negotiations evolve significantly after the LOI is signed, revise the document or supplement it with a memorandum of understanding (MOU).
Common Mistakes to Avoid
Using boilerplate LOIs without customizing for the specific transaction
Assuming LOIs are always non-binding
Failing to include exclusivity or confidentiality clauses
Overloading the LOI with legal jargon, which can confuse the other party and stall the deal
Skipping legal review, which can lead to enforceability issues or poor negotiating positions later
At The Real Estate Law Firm, we routinely help investors, landlords, and developers avoid these errors by tailoring each LOI to their specific needs.
How The Real Estate Law Firm Can Help
Our experienced attorneys provide:
Drafting and negotiation support
Legal review of LOIs to identify risk
Coordination with brokers and financial advisors
Guidance on enforceability and compliance
Seamless transition from LOI to contract drafting
Whether you’re acquiring a shopping center, leasing a warehouse, or selling a commercial parcel, The Real Estate Law Firm ensures your LOI protects your interests and positions you for success.
Final Thoughts
A well-constructed Letter of Intent does more than just mark the beginning of a real estate transaction—it sets the tone for everything that follows. The time and attention you invest in this document can prevent costly mistakes and delays down the road. Don’t go it alone. Consult with The Real Estate Law Firm to ensure your LOI is not just a letter of intent, but a blueprint for a successful deal.
FAQs: Letter of Intent for Commercial Property Deals
1. Is a Letter of Intent legally binding?
Typically, no. However, certain clauses—like confidentiality or exclusivity—can be legally enforceable if written that way.
2. Can I write my own LOI without a lawyer?
You can, but it’s risky. A poorly written LOI can weaken your negotiating power. It's safer to involve professionals like The Real Estate Law Firm.
3. What happens after both parties sign the LOI?
The parties usually begin due diligence, prepare formal contracts, and proceed toward closing or lease execution.
4. Can I back out after signing an LOI?
Yes, unless the LOI contains binding provisions. Still, walking away without cause may damage business relationships or your reputation.
5. Should every LOI include a confidentiality clause?
Yes. This helps protect sensitive deal information, especially during competitive or high-value negotiations.
6. What's the difference between an LOI and a Memorandum of Understanding (MOU)?
They are similar, but an MOU is often more formal and may include more binding terms than an LOI.
7. How long should an LOI remain valid?
Most LOIs specify an expiration date or a window for negotiations, typically ranging from 15 to 60 days.
8. Who usually drafts the LOI—the buyer or seller?
It can be either. However, involving The Real Estate Law Firm ensures the document is balanced and legally sound.
9. Can I negotiate terms after signing an LOI?
Yes, the LOI is a starting point. Final terms are often refined during due diligence and contract drafting.
10. Is it okay to use a template for an LOI?
Templates can help, but they must be customized. The best practice is to have The Real Estate Law Firm tailor it to your unique deal.