What Is a Letter of Intent (LOI) in Commercial Real Estate?

A letter of intent, commonly called an LOI, is one of the most important documents used during a commercial real estate negotiation.

An LOI outlines the principal business terms of a proposed lease, purchase, or other real estate transaction before the parties invest substantial time and money in a final agreement.

In a commercial lease, the LOI may address:

• The premises
• Rental rate
• Lease term
• Operating expenses
• Tenant improvements
• Renewal options
• Security deposit
• Parking
• Signage
• Opening schedule

In a property sale, it may address:

• Purchase price
• Deposit
• Due diligence
• Financing
• Closing schedule
• Property condition
• Documents to be provided
• Contingencies

The LOI gives the parties a structured way to determine whether they agree on the main economic and operational terms.

It is usually not intended to replace a lease or purchase agreement. Instead, it serves as the framework for the attorneys and other professionals who prepare and review the final documents.

What Does LOI Stand For?

LOI stands for letter of intent.

Commercial real estate professionals may also refer to an LOI as:

• A lease proposal
• A term sheet
• A proposal to lease
• A memorandum of business terms
• An offer summary
• A deal summary

The names may differ, but the purpose is generally the same: document the principal proposed terms before moving to definitive contracts.

A landlord may issue the first proposal, or a tenant’s broker may prepare an LOI based on the tenant’s requirements. In a purchase transaction, either the buyer or seller may initiate the document.

Why Is an LOI Used?

Commercial leases and purchase agreements can be lengthy and expensive to prepare.

Before involving attorneys in detailed document drafting, the parties usually want to confirm that they agree on the key business terms.

An LOI helps them:

• Organize the proposal
• Identify points of disagreement
• Compare multiple properties
• Confirm financial expectations
• Establish a negotiation record
• Assign responsibilities
• Set a preliminary schedule
• Reduce unnecessary legal drafting
• Provide instructions for the final agreement

An effective LOI does not need to resolve every possible issue. It should address enough of the transaction to show whether the parties have a workable basis for continuing.

Is a Letter of Intent Binding?

Many commercial real estate LOIs state that they are nonbinding, except for any sections expressly identified as binding.

That distinction matters.

Calling a document an “LOI” or marking it “nonbinding” does not necessarily resolve every legal question. Courts may consider the wording, the level of detail, the parties’ conduct, and whether the document reflects an intention to create enforceable obligations.

The Florida Bar advises that written agreements must identify the parties’ agreement with sufficient specificity to be enforceable and that certain types of contracts require particular terms. It also recommends attorney review when the legal effect of a written agreement is uncertain.

Because an LOI can affect substantial financial and operational interests, the parties should have a qualified commercial real estate attorney review it when legal rights may be created.

Provisions That May Be Binding

Even when the principal lease or purchase terms are nonbinding, an LOI may contain provisions intended to take immediate effect.

These may include:

• Confidentiality
• Exclusivity
• Nondisclosure
• Access to the property
• Responsibility for inspection costs
• Return or destruction of documents
• Broker identification
• Governing law
• Dispute procedures
• Expiration of the proposal
• Public announcements

The LOI should clearly identify which provisions are intended to be binding and which remain subject to final documents.

Is an Electronic Signature on an LOI Valid in Florida?

Florida law generally provides that an electronic signature may be used to sign a writing and has the same force and effect as a written signature, unless another law provides otherwise.

Florida law defines an electronic signature broadly as electronic characters or symbols adopted with the intent to authenticate a writing.

This means an LOI signed electronically should not be treated casually. The fact that it was signed through an electronic platform rather than with ink does not automatically reduce its legal significance.

Who Prepares the LOI?

An LOI may be prepared by:

• A tenant’s commercial real estate broker
• A landlord’s broker
• A buyer’s broker
• A seller’s broker
• The landlord
• The tenant
• An attorney
• An authorized company representative

Commercial real estate brokers commonly help prepare and negotiate the business terms of an LOI as part of their brokerage services.

Attorneys should provide legal advice, interpret legal obligations, and prepare or revise final contractual language. Brokers should not present themselves as attorneys or give legal opinions outside the scope of their licenses.

A strong process allows the broker, client, attorney, architect, contractor, accountant, lender, and other advisors to address the areas within their respective roles.

LOI vs. Commercial Lease

An LOI and a lease serve different purposes.

A tenant should not assume that every provision in the LOI will appear exactly the same in the lease.

The lease may introduce additional terms involving:

• Default
• Indemnification
• Insurance
• Casualty
• Condemnation
• Assignment
• Subletting
• Compliance with laws
• Repairs
• Maintenance
• Damage remedies
• Personal guarantees
• Operating rules

The tenant and landlord should compare the proposed lease against the approved LOI before signing.

LOI vs. Lease Proposal

The terms “LOI” and “lease proposal” are sometimes used interchangeably, but a proposal may be less formal.

A landlord’s proposal may present the owner’s initial terms without requesting signatures. A tenant may then respond with an LOI that accepts some terms, rejects others, and adds new requirements.

Regardless of the title, the parties should focus on:

• What the document says
• Whether it is signed
• Whether any terms are binding
• When it expires
• What must happen next

The heading alone does not determine the document’s effect.

What Should a Commercial Lease LOI Include?

The appropriate terms depend on the property type and the tenant’s business.

The following sections are commonly addressed.

1. Identification of the Parties

The LOI should identify:

• The proposed landlord
• The proposed tenant
• The legal entity that will sign
• Any guarantor under consideration
• The commercial real estate brokerages involved

The business entity should be described accurately.

A tenant should avoid signing documents in an individual name when the lease is intended to be held by a company, unless that structure has been reviewed and approved.

2. Property and Premises

The document should identify:

• Property address
• Building name
• Suite or unit number
• Floor
• Approximate rentable square footage
• Approximate usable square footage, when available
• Included storage or outdoor areas
• Plans or exhibits defining the premises

A vague property description may cause disagreements later, particularly when the building contains multiple suites or shared areas.

3. Permitted Use

The permitted-use provision states what the tenant plans to do in the space.

Examples include:

• General professional office
• Medical office
• Restaurant
• Retail sales
• Fitness facility
• Warehouse and distribution
• Light assembly
• Showroom
• Educational use

This term should be broad enough to support the tenant’s current operations and reasonable changes during the lease.

The proposed use should also be reviewed against:

• Zoning
• Building restrictions
• Certificate-of-use requirements
• Parking
• Exclusive-use rights
• Private covenants
• Licensing requirements
• Utility capacity

A landlord’s approval of the LOI does not automatically establish that the proposed use is legally permitted.

4. Lease Term

The LOI should state the proposed initial lease term.

Commercial lease terms vary considerably based on:

• Property type
• Construction investment
• Business plan
• Financing
• Landlord requirements
• Tenant credit
• Market conditions

A short term may provide flexibility but may limit the landlord’s willingness to fund improvements. A longer term may support greater investment in the premises but creates a larger commitment.

5. Lease Commencement Date

The lease commencement date may refer to the date when the lease becomes effective or the tenant’s legal occupancy begins.

This date may differ from:

• Delivery date
• Construction commencement
• Possession date
• Rent commencement date
• Opening date

The LOI should define these milestones carefully instead of treating them as interchangeable.

6. Rent Commencement Date

The rent commencement date states when the tenant begins paying rent.

It may occur:

• On lease execution
• When possession is delivered
• After an improvement period
• When construction is substantially complete
• When the business opens
• On a fixed calendar date

The parties should consider what happens if permitting, utility work, landlord construction, or tenant construction takes longer than expected.

7. Base Rent

The LOI should state the proposed rental rate and how it will be calculated.

The rate may be expressed as:

• Dollars per rentable square foot per year
• Dollars per square foot per month
• A fixed monthly amount
• A percentage of gross sales
• A combination of fixed and percentage rent

The document should also state whether the quoted rent is:

• Full service
• Modified gross
• Triple net
• Absolute net
• Industrial gross
• Another structure

A rental number has limited meaning unless the expense structure is also clear.

8. Rent Increases

The LOI should explain how rent changes during the lease term.

Common structures include:

• Fixed annual increases
• Percentage increases
• Scheduled dollar increases
• Consumer Price Index adjustments
• Fair market rent adjustments
• A combination of methods

The method should be clear enough to estimate total rent over the proposed term.

9. Operating Expenses, CAM, Taxes, and Insurance

The LOI should identify the expenses the tenant will pay in addition to base rent.

These may include:

• Common Area Maintenance
• Property taxes
• Building insurance
• Utilities
• Janitorial service
• Security
• Waste service
• Association charges
• Management fees

The document may also address:

• Base year
• Expense stops
• Controllable-expense caps
• Gross-up provisions
• Audit rights
• Administrative fees
• Excluded costs
• Reconciliation procedures

Tenants should compare total estimated occupancy cost rather than base rent alone.

10. Security Deposit

The LOI may state:

• Deposit amount
• Due date
• Form of payment
• Conditions for return
• Whether the deposit may increase
• Whether a letter of credit is required
• Whether the deposit may be reduced after a period of performance

The required security may depend on tenant credit, lease length, construction costs, and the financial strength of any guarantor.

11. Personal or Corporate Guarantee

A landlord may request:

• A personal guarantee
• A corporate-parent guarantee
• A limited guarantee
• A rolling guarantee
• A good-guy guarantee
• A guarantee that reduces after performance milestones

Guarantee terms can create significant financial exposure and should be reviewed by legal counsel.

The LOI should address the issue early so the parties do not complete extensive negotiations only to discover that their expectations differ.

12. Tenant Improvement Allowance

A tenant improvement allowance is an amount the landlord agrees to contribute toward approved construction.

The LOI should address:

• Allowance amount
• Whether it is based on rentable square footage
• Eligible expenses
• Disbursement process
• Required documentation
• Construction deadlines
• Treatment of unused funds
• Responsibility for overruns
• Whether the allowance affects rent

A large allowance does not automatically make one proposal better than another. The tenant should compare rent, term, construction obligations, and total project cost.

13. Landlord Work

The landlord may agree to complete certain work before delivering the premises.

Examples include:

• HVAC repair or replacement
• Roof repair
• Restroom construction
• Electrical upgrades
• Demolition
• Storefront work
• Fire sprinkler modifications
• ADA improvements
• Utility delivery
• Exterior repairs

The LOI should describe the work with enough detail to reduce later disagreement.

Detailed plans, specifications, and construction exhibits may still be required in the lease.

14. Delivery Condition

The LOI should explain how the property will be delivered.

Possible descriptions include:

• As-is
• Broom clean
• Warm shell
• Cold shell
• Vanilla shell
• Fully built out
• Subject to specified landlord work

Terms such as “shell” can mean different things to different parties. The document should list the systems and finishes that will be present at delivery.

15. Renewal Options

A renewal option gives the tenant the right, but not usually the obligation, to extend the lease.

The LOI may address:

• Number of options
• Length of each extension
• Advance notice
• Renewal rent
• Conditions for exercise
• Whether the option is personal to the original tenant

Renewal rent may be fixed in advance or determined by a fair-market process.

16. Expansion and Contraction Rights

A growing tenant may seek:

• Right of first offer
• Right of first refusal
• Expansion option
• Right to lease adjacent space
• Relocation restrictions

A tenant with uncertain future staffing may seek a contraction option or early termination right.

These provisions can be difficult to secure, but raising them in the LOI is generally more effective than waiting until lease drafting.

17. Assignment and Subletting

Assignment and subletting provisions affect the tenant’s ability to transfer the lease or allow another party to occupy the premises.

The LOI may request:

• Landlord consent not to be unreasonably withheld
• Transfers to affiliates
• Transfers resulting from a sale or merger
• Reduced landlord recapture rights
• Reasonable review standards
• Defined processing fees

These rights can be important when a company restructures, sells a division, grows, or reduces its space.

18. Parking

Parking terms may include:

• Number of spaces
• Parking ratio
• Reserved spaces
• Visitor spaces
• Accessible parking
• Structured parking
• Monthly fees
• Validation rights
• Employee parking areas
• Overnight parking
• Delivery access

A space may meet the tenant’s square-footage requirement but fail operationally because of inadequate parking.

19. Signage

The LOI may address rights to:

• Building signage
• Monument signage
• Pylon signage
• Storefront signage
• Door signage
• Directory signage
• Highway-visible signage

All signage may remain subject to landlord approval, municipal code, building criteria, and permit requirements.

Retailers and customer-facing businesses should consider signage rights early in the process.

20. Exclusive Use

A retail tenant may request an exclusive-use provision restricting the landlord from leasing other space in the project to a competing business.

The LOI should define:

• The protected products or services
• The geographic area within the project
• Exceptions for existing tenants
• Remedies for a violation
• Conditions for maintaining the exclusive

Overly broad language may be difficult for a landlord to accept, while language that is too narrow may provide little protection.

21. Co-Tenancy

A retail tenant may condition its obligations on the presence of:

• A named anchor tenant
• A minimum occupancy level
• A specified number of operating businesses
• Certain categories of retailers

The LOI may explain what happens if the condition is not met, such as reduced rent or termination rights.

22. Due Diligence and Contingencies

A tenant may need time to investigate:

• Zoning
• Permitting
• Licensing
• Utilities
• Environmental conditions
• Structural capacity
• Parking
• Accessibility
• Construction cost
• Signage
• Financing
• Franchise approval

The LOI may state that the transaction is subject to satisfactory due diligence, although the final lease should describe any formal contingencies and termination rights.

23. Broker Representation

The LOI should identify the brokerages involved in the transaction.

This section may help confirm:

• Which brokerage represents or works with each party
• That the parties have not used undisclosed brokers
• That compensation is governed by separate agreements
• Who should receive transaction communications

Brokerage compensation should be handled according to the applicable written agreements and licensing requirements.

24. Confidentiality and Exclusivity

The landlord or tenant may request confidentiality regarding:

• Proposed rent
• Financial statements
• Business plans
• Property information
• Negotiation status

A tenant may also request an exclusivity period during which the landlord agrees not to negotiate the premises with another party.

Because these provisions may be intended to bind the parties immediately, they should be reviewed carefully.

25. LOI Expiration

An LOI should usually include an expiration date.

An expiration provision:

• Encourages a timely response
• Prevents an old proposal from remaining open indefinitely
• Gives the parties a negotiation schedule
• Allows changing market conditions to be considered

Expiration does not always prevent continued negotiations, but it may end the right to accept the existing proposal.

What Should a Commercial Purchase LOI Include?

A purchase LOI often includes many of the same concepts but focuses on acquisition terms.

Common provisions include:

• Buyer and seller
• Property description
• Purchase price
• Earnest-money deposit
• Due-diligence period
• Financing contingency
• Closing date
• Title review
• Survey
• Property condition
• Environmental review
• Existing leases
• Estoppel certificates
• Assignment rights
• Access for inspections
• Confidentiality
• Exclusivity
• Broker identification
• Allocation of closing costs
• Required seller documents

The final purchase and sale agreement should provide substantially greater detail than the LOI.

How Does the LOI Negotiation Process Work?

A typical leasing process may follow these steps.

Step 1: Define the Tenant’s Requirements

Before preparing the LOI, the tenant should establish:

• Target location
• Square footage
• Budget
• Use
• Parking
• Timing
• Buildout
• Lease term
• Growth plans

Step 2: Review Market Options

The tenant and broker compare available properties based on location, economics, physical condition, and operational suitability.

Step 3: Request Proposals

The tenant may request terms from one or several landlords.

Step 4: Prepare the LOI

The tenant’s representative may prepare a proposed LOI or revise the landlord’s proposal.

Step 5: Exchange Revisions

The parties may exchange several versions while working through rent, expenses, construction, timing, and other terms.

Step 6: Approve the Business Terms

Once the principal terms are accepted, the parties sign the LOI or confirm approval in another agreed manner.

Step 7: Prepare the Lease

The landlord’s attorney commonly prepares the first lease draft, although the process varies.

Step 8: Complete Legal and Technical Review

Attorneys review the lease, while architects, contractors, engineers, accountants, insurance advisors, and other professionals may review issues within their fields.

Step 9: Sign the Lease

The transaction becomes effective according to the final lease and its stated conditions.

How Long Does LOI Negotiation Take?

Some LOIs are resolved within a few days. Others take several weeks.

Timing depends on:

• Transaction complexity
• Number of decision-makers
• Construction requirements
• Credit review
• Market competition
• Property type
• Franchise approval
• Financing
• Corporate approval
• Responsiveness of the parties

A quick LOI process is not always better. Important terms should be understood before the lease is drafted.

At the same time, unnecessary delays can place the property at risk if another qualified tenant or buyer is interested.

Can a Tenant Negotiate More Than One LOI?

A tenant may compare multiple properties and request proposals from more than one landlord, subject to any confidentiality, exclusivity, or good-faith obligations.

Comparing proposals can help the tenant assess:

• Total rent
• Operating expenses
• Construction support
• Parking
• Lease flexibility
• Delivery timing
• Location
• Property condition

However, each negotiation should be handled honestly and professionally.

A tenant should not sign conflicting exclusivity provisions or represent that a deal is final when it is not.

Common LOI Mistakes

Focusing Only on Base Rent: A low rental rate may be offset by high CAM, taxes, insurance, utilities, parking, construction costs, or annual increases.

Leaving the Premises Undefined: Unclear square footage or suite boundaries can affect rent, construction, and operating expenses.

Ignoring Buildout Timing: The tenant may sign a lease without enough time to obtain plans, permits, materials, inspections, and licenses before the required opening date.

Using Vague Construction Terms: Descriptions such as “turnkey” or “vanilla shell” may not identify who provides HVAC, electrical work, flooring, ceilings, plumbing, or code upgrades.

Failing to Address Guarantees: A landlord and tenant may agree on rent but later reach an impasse over a personal or corporate guarantee.

Overlooking Renewal and Expansion Rights: These terms are often easier to address during the LOI stage than after the lease draft is prepared.

Assuming the LOI Is Automatically Nonbinding: The legal effect depends on the document and surrounding circumstances, not just its title.

Skipping Attorney Review: A signed LOI may contain binding provisions or language that influences the final lease. The Florida Bar recommends legal review when parties need help understanding the consequences of contractual terms.

How a Commercial Real Estate Broker Helps with an LOI

A commercial real estate broker can assist with the business side of the LOI by:

• Researching market rental rates
• Comparing competing properties
• Reviewing expense structures
• Identifying operational requirements
• Preparing financial comparisons
• Coordinating proposals
• Presenting the client’s terms
• Managing revisions
• Tracking agreed business points
• Coordinating with legal and construction professionals

For a tenant, the broker’s role is not limited to locating space. A properly structured LOI may affect millions of dollars in rent, expenses, construction, and long-term obligations.

For a landlord, the LOI helps evaluate tenant credit, deal economics, construction exposure, and the effect of the transaction on the property.

Why the LOI Matters for Office Tenants

Office tenants should pay close attention to:

• Usable and rentable square footage
• Load factor
• Base year or expense stop
• Parking
• After-hours HVAC
• Furniture
• Cabling
• Existing buildout
• Tenant improvement allowance
• Expansion rights
• Building access
• Renewal terms

An efficient existing floor plan may have substantial value because it can reduce construction cost and occupancy delays.

Why the LOI Matters for Retail Tenants

Retail tenants may need additional terms involving:

• Exclusive use
• Co-tenancy
• Signage
• Storefront criteria
• Delivery access
• Patio areas
• Grease traps
• Ventilation
• Operating hours
• Opening requirements
• Percentage rent
• Radius restrictions
• Protected territory
• Franchise approval

A retailer should verify that the location supports its use before making a long-term lease commitment.

Why the LOI Matters for Industrial Tenants

Industrial tenants may need to address:

• Loading docks
• Drive-in doors
• Clear height
• Trailer parking
• Yard use
• Outside storage
• Power
• Fire suppression
• Floor load
• Truck access
• Office percentage
• Hazardous materials
• Operating hours
• Roof rights
• Equipment installation

The LOI should identify critical operating requirements so they can be reflected in the lease and construction documents.

LOI Checklist for Commercial Tenants

Before approving an LOI, confirm that it addresses:

• Correct tenant entity
• Correct property and suite
• Square footage
• Permitted use
• Lease term
• Commencement
• Rent commencement
• Base rent
• Annual increases
• CAM and operating expenses
• Property taxes
• Insurance charges
• Utilities
• Security deposit
• Guarantee
• Improvement allowance
• Landlord work
• Delivery condition
• Construction timing
• Renewal options
• Expansion rights
• Assignment and subletting
• Parking
• Signage
• Exclusivity
• Due diligence
• Broker identification
• Expiration
• Binding and nonbinding provisions

The appropriate list may be longer for specialized uses.

Frequently Asked Questions

What is an LOI in commercial real estate?

An LOI is a preliminary document that summarizes the main proposed terms of a commercial lease or property purchase before the parties prepare final contracts.

Is an LOI the same as a lease?

No. An LOI generally outlines proposed business terms, while the lease establishes the parties’ detailed legal rights and obligations.

Is a commercial real estate LOI legally binding?

Many LOIs are intended to be largely nonbinding, but some provisions may be binding. The wording, detail, signatures, and conduct of the parties can affect the legal analysis. A commercial real estate attorney should review questions about enforceability.

Who usually writes the LOI?

A commercial real estate broker, attorney, landlord, tenant, buyer, or seller may prepare the first draft. Brokers commonly assist with business terms, while attorneys handle legal advice and contractual language.

What happens after an LOI is signed?

The parties typically move to lease or purchase-agreement drafting, legal review, financial review, inspections, construction planning, and any required approvals.

Can the terms change after the LOI?

Yes, particularly when the LOI is nonbinding. New issues may arise during lease drafting, due diligence, legal review, or construction planning. Material changes should be discussed and documented.

Does an LOI require a deposit?

A lease LOI does not always require a deposit. A purchase LOI may propose an earnest-money deposit, but the final purchase agreement usually controls the deposit procedure.

Can a landlord lease the property to someone else after signing an LOI?

Possibly. A nonbinding LOI may not prevent the landlord from negotiating with another party unless it contains a binding exclusivity provision or another enforceable restriction.

Should a tenant have an attorney review the LOI?

Attorney review is advisable when the LOI contains binding provisions, significant financial commitments, complex construction terms, exclusivity, confidentiality, guarantees, or other legal issues.

How detailed should an LOI be?

It should be detailed enough to identify the principal economic and operational terms without trying to replace the final lease or purchase agreement.

Final Thoughts

A letter of intent gives commercial real estate parties a practical way to organize negotiations before moving to final documents.

A well-prepared LOI can clarify:

• What space or property is involved
• What the tenant or buyer will pay
• What expenses are included
• How long the agreement will last
• What work must be completed
• What contingencies remain
• When the transaction should move forward

The strongest LOIs do more than state a rental rate or purchase price. They address the terms that affect how the property will function, how much the transaction may cost, and how the parties will proceed.

The document should also make clear whether it is binding, nonbinding, or partly binding.

Because an LOI may have legal consequences, commercial parties should use qualified legal counsel for advice regarding enforceability, contract language, and their specific rights. Written agreements can create significant obligations, and Florida courts generally enforce contracts according to their terms when a binding agreement has been formed.

A commercial lease decision begins well before the final lease is signed.

Trinity Commercial Group works with tenants, landlords, buyers, sellers, investors, and developers through site selection, property analysis, proposal preparation, LOI negotiations, due diligence, construction coordination, and transaction completion.

TCG’s commercial real estate teams help clients compare the full terms of each opportunity—not only rent or purchase price—so operational needs, expenses, timing, growth plans, and property conditions are considered before a long-term commitment is made.

If you are looking to evaluate a space or need guidance on drafting and negotiating your next agreement, explore our leasing services, review our current investment sales opportunities, or discover how our experts can support your portfolio through comprehensive property management. Contact Trinity Commercial Group to discuss an office, retail, industrial, land, or investment property requirement.

This article provides general educational information and is not legal, tax, accounting, construction, or financial advice. An LOI may create legal obligations depending on its wording and the circumstances. Parties should consult qualified Florida legal counsel before signing transaction documents.