Commercial Real Estate
Commercial Real Estate Letter of Intent (LOI) Guide
Learn what a commercial real estate letter of intent is, how LOIs work, which terms matter, and how binding vs non-binding clauses can affect a deal.
A commercial real estate letter of intent, often called an LOI, is one of the most important early documents in a commercial property transaction. It outlines the proposed business terms of a deal before the parties invest time and money in a full purchase and sale agreement. A clear LOI helps buyers and sellers confirm that they are aligned on price, timing, and structure before attorneys begin drafting the definitive contract.
This guide explains what a letter of intent is, why it matters, which terms typically appear in a commercial LOI, and how binding and non-binding provisions can shape the rest of a deal.
What Is a Commercial Real Estate Letter of Intent
A letter of intent is a written summary of the proposed terms for a commercial real estate transaction. It is usually prepared by the buyer, delivered to the seller, and negotiated back and forth until both sides agree on the framework of the deal. Once signed, the LOI acts as a roadmap for the more detailed purchase and sale agreement that follows.
Most LOIs are primarily non-binding on the core business terms, which allows both parties to withdraw if due diligence or negotiations do not go as expected. However, specific sections of an LOI, such as exclusivity, confidentiality, and governing law, are often intentionally binding. Understanding which provisions carry legal weight is essential before signing.
Why LOIs Matter in Commercial Transactions
A well-drafted LOI reduces friction later in the deal. It gives both parties a shared reference document, helps avoid misunderstandings when the purchase and sale agreement is drafted, and can shorten the overall timeline to closing. For sellers evaluating an off-market direct sale, a clear LOI also signals that the buyer is organized, credible, and serious about performing.
Owners who are exploring a private transaction as part of selling commercial property off market often rely on the LOI to confirm price and structure before opening the data room and sharing sensitive financials with a buyer.
Core Business Terms in a Commercial LOI
While every deal is different, most commercial real estate letters of intent cover the same core categories of business terms. These are the sections that define what the deal is, how it will move forward, and what each party is agreeing to consider.
Purchase Price
The LOI should clearly state the proposed purchase price for the property. It may also outline the expected capital structure, including earnest money deposits, financing assumptions, and any major funding milestones.
Due Diligence Period
The due diligence period gives the buyer time to review the property in detail. This may include rent rolls, leases, operating statements, physical inspections, environmental reports, title review, surveys, and other property-level documents.
Target Closing Date
The LOI usually identifies a target closing timeline. This helps both sides understand how long the deal may take after the due diligence period ends and what steps must happen before the transaction can close.
Transaction Costs
A strong LOI should also address how major transaction costs may be handled. This can include title insurance, transfer taxes, recording fees, legal fees, brokerage commissions, and other closing-related expenses.
Binding vs Non-Binding Clauses
One of the most important distinctions in any commercial LOI is which provisions are binding and which are not. Most of the business terms — price, due diligence period, closing date — are typically drafted as non-binding, meaning either party can walk away without penalty if a full purchase and sale agreement is not reached. Certain other provisions, however, are usually made explicitly binding.
Exclusivity or No-Shop Provision
An exclusivity clause, sometimes called a no-shop provision, can prevent the seller from marketing the property, accepting backup offers, or negotiating with other buyers for a set period of time. This gives the buyer confidence to spend money on inspections, reports, surveys, and legal review without immediately competing against another offer.
Confidentiality
Confidentiality language may require both parties to keep the transaction private. This can include the purchase price, financial records, rent rolls, tenant information, operating statements, and other sensitive deal materials.
Because some LOI provisions can create real obligations, owners and buyers should involve qualified legal counsel before signing anything that may affect their rights or restrict future negotiations. The American Bar Association publishes broad commercial contract guidance that can help owners understand how binding contract language is typically interpreted, though it is not a substitute for advice from a licensed attorney in your jurisdiction.
How LOIs Fit into Underwriting
The LOI is also where a buyer's underwriting assumptions become concrete. The purchase price stated in the LOI implies a specific cap rate, price per unit, or price per square foot based on the property's income and physical characteristics. Sellers who want to sanity-check those numbers before signing can use our cap rate calculator to see how the proposed price compares to trailing net operating income.
If the numbers do not line up with the seller's expectations, that conversation is easier and less expensive at the LOI stage than after both sides have engaged attorneys, ordered reports, and started formal due diligence.
Common Mistakes to Avoid
Two of the most common LOI mistakes are treating the document as either too casual or too final. Treating it as too casual can leave key terms undefined, which creates fights during the purchase and sale agreement negotiation. Treating it as too final can lead a party to sign binding provisions — particularly exclusivity or non-refundable deposit language — without fully understanding the consequences.
Other common issues include vague due diligence timelines, unclear closing conditions, missing detail on assumed leases or debt, and no mention of how brokerage commissions will be paid. Each of these gaps tends to surface later at the worst possible time.
When to Send an LOI
A buyer typically sends an LOI once they have enough information to price the property with confidence and want to lock in a framework before spending money on formal due diligence. A seller typically counters or accepts an LOI once they are comfortable with the buyer's ability to close and the proposed structure of the deal.
Owners who are considering a direct sale can Submit a Property for a confidential review. If the property fits, the acquisitions team can move to an LOI quickly once basic due diligence materials have been shared.
Final Thoughts
A commercial real estate letter of intent is more than a formality. It sets the tone for the entire transaction, defines the framework of the deal, and locks in the provisions that both sides are willing to be held to. Owners and buyers who treat the LOI as a serious business document — and who involve qualified legal counsel before signing anything with binding language — put themselves in the strongest position to reach a clean closing.