Commercial Real Estate Letter of Intent (LOI) Walkthrough
A Letter of Intent (LOI) in commercial real estate is a non-binding pre-contract document that outlines the essential economic terms of a proposed transaction. LOIs are used to align buyer and seller before lawyers spend time drafting the formal Purchase and Sale Agreement.
What it is
An LOI is typically 2–5 pages long and summarizes the material terms of a proposed CRE purchase or lease. Most provisions are non-binding — intended to express intent rather than create legal obligations — though specific clauses (confidentiality, exclusivity, no-shop) are usually made binding by explicit language.
Who uses it
Buyers send LOIs to sellers (or their brokers) to formalize their offer. Brokers often draft the initial LOI based on market standards and the specific deal. The LOI exchange (and counters) typically happens before engaging legal counsel for the formal purchase agreement.
Standard LOI terms (economic)
Every CRE LOI should cover these economic terms with specificity:
- Purchase price
- Dollar amount. May be a range initially, but should be specific by the time the LOI is signed.
- Earnest money deposit
- Initial deposit (typically 1-3% of purchase price), escrow terms, and when it becomes hard (non-refundable).
- Due diligence period
- Typically 30-90 days from execution. Buyer's termination right is often tied to this window.
- Financing contingency
- If any. Institutional buyers often submit LOIs without financing contingency to win deals.
- Closing date
- Target closing date, typically 60-120 days from LOI execution.
- Representations and warranties
- High-level list of seller reps (title, leases, environmental, financial). Expanded in the PSA.
- Broker commission
- Which party pays commission, to which broker, at what rate.
Binding vs. non-binding provisions
LOIs are carefully structured so that core economic terms remain non-binding while certain process terms are binding.
- Non-binding provisions (typical)
- Purchase price, due diligence period, representations and warranties, financing terms, closing conditions.
- Binding provisions (typical)
- Confidentiality, exclusivity/no-shop period, broker commission arrangements, governing law, expense allocation for LOI preparation.
Exclusivity and no-shop
An exclusivity or no-shop clause prevents the seller from marketing or negotiating with other buyers during the LOI period. Typical terms: 30-60 days of exclusivity after LOI execution. Sellers resist longer periods; buyers need enough time to complete diligence and draft a PSA.
When the LOI becomes a PSA
After LOI execution, both parties' attorneys draft the formal Purchase and Sale Agreement. The PSA expands every LOI provision into full contractual language with operative terms. The PSA supersedes the LOI on execution.
Common mistakes
- Treating the LOI as binding on economic terms when it clearly states otherwise
- Omitting exclusivity — seller keeps marketing while you spend diligence money
- Insufficient due diligence period — 30 days on a complex deal leaves no margin
- Missing broker commission language — creates disputes at closing
- Not specifying earnest money escrow — ambiguity on who holds, when hard
Frequently asked questions
Is an LOI legally binding?
Most provisions are non-binding. Specific provisions (confidentiality, exclusivity, commission) are typically made binding by explicit language. Read the 'Binding/Non-Binding' language carefully — it controls.
Can I walk away from an LOI?
Yes, in most cases. Because core economic terms are non-binding, either party can typically walk away before the PSA is signed, with some exceptions for binding provisions (e.g., breaking exclusivity could trigger damages).
How long does an LOI negotiation take?
Simple deals: 1-2 weeks. Complex deals: 3-6 weeks. Most LOI negotiations involve 1-3 redline exchanges before execution.