A commercial real estate letter of intent (LOI) is a short document where a buyer or tenant sets out the main terms they’re proposing for a property, and the other side signs to show they agree in principle. It isn’t the deal itself. It’s the outline that the purchase agreement or lease gets drafted from, with a few clauses, like confidentiality, that do bind both sides right away.

When do you use a real estate LOI?

Use one when a commercial deal is serious enough that both sides want the key terms on paper before paying lawyers to draft a full contract. A few hypothetical examples:

  • A physical therapy practice wants 2,400 square feet in a strip center and needs to agree rent, term and a build-out allowance before the landlord’s lawyer writes the lease.
  • An investor wants to buy a 12-unit apartment building for $1.8 million and needs 45 days of due diligence without the seller entertaining other offers.
  • A contractor wants to buy the vacant lot next to its yard and wants the price and closing date settled before ordering a survey.

In each case, the LOI surfaces disagreements early. If the landlord won’t budge on a 5% annual rent increase, you’d rather know that before spending $3,000 on legal fees.

For simple deals, or residential ones, you can often skip the LOI and go straight to a contract: the real estate purchase agreement, the commercial lease agreement, or for raw land the land purchase agreement. If you’re buying a business rather than a building, use the letter of intent to purchase a business instead, since it covers assets, staff and the seller’s transition.

Which parts of a letter of intent are binding?

Whatever the document clearly says is binding, and possibly more if the wording is vague. Our template splits it cleanly: the business terms are expressly non-binding, and a short list of clauses is expressly binding.

Why be so explicit? Because courts do enforce LOI terms. An article on the Harvard Law School Forum on Corporate Governance, discussing a Delaware decision, notes the court’s view that parties enter into LOIs for a reason and that they create rights. The court enforced an exclusivity promise, and said an obligation to negotiate in good faith is a real duty: in its words, “radio silence is not negotiating in good faith.” The article’s advice is to spell out which provisions bind and which don’t, because loose phrases like “good faith negotiations” can carry legal weight.

So in our template:

Non-binding: price or rent, deposits, due diligence, financing, closing or commencement dates, and every other business term. Either side can walk away from these until a final agreement is signed.

Binding: confidentiality, exclusivity (if you choose it), each side paying its own costs, the non-binding statement itself, governing law, and the expiration date of the LOI.

There’s also the statute of frauds. Contracts for the sale or transfer of land generally have to be in writing and signed by the parties bound. An LOI that says it isn’t a contract to buy or lease is consistent with that: the binding promise to buy or lease comes later, in the signed purchase agreement or lease.

What goes into a commercial real estate LOI?

For a purchase

Price, earnest money and who holds it, the due diligence period and what the buyer gets access to (leases, rent roll, service contracts, environmental reports), financing, the title and survey process, the closing date, and how closing costs are split.

For a lease

Premises and square footage, term and commencement, base rent and increases, how operating expenses, taxes and insurance are handled (gross, modified gross, or triple net), a tenant improvement allowance or landlord work, any free rent, permitted use, renewal options, security deposit, and parking and signage.

For both

Brokers and who pays them, the binding clauses above, and an expiration date if the other side doesn’t sign.

How do you fill it in and sign it?

  1. Tick purchase or lease, and delete the section you don’t need.
  2. Fill in the terms you’ve discussed. Leave out anything you haven’t agreed on rather than guessing; a blank is better than a number you’ll have to walk back.
  3. Decide on exclusivity. A buyer paying for inspections will want it; a seller will want it short.
  4. Set an expiration date for the offer.
  5. Send it to the other side (or their broker), negotiate, and sign when you agree.
  6. Hand the signed LOI to whoever is drafting the purchase agreement or lease.

An LOI can be signed electronically. The federal ESIGN Act says a signature or contract can’t be denied legal effect just because it’s electronic, so signing with an e-signature tool is fine for this document. If there are several people on each side, our guide to getting a document signed by multiple people walks through signing order. Download the template, adapt it to your deal, and send it with any e-signature tool you like. (We’re building SignWren for exactly this; join the waitlist.)

This template and guide are general information, not legal advice. Commercial deals carry real money, so have a real estate lawyer licensed where the property is review the LOI and the final contract.