What Is a Letter of Intent (LOI) and How Binding Is It?

The outcome you should expect

When an LOI is drafted correctly, the outcome is a deal you can still walk away from that nonetheless holds the landlord to a defined set of numbers throughout the lease drafting process. That is the entire point of the document, and it is worth being precise about what "correctly" means, because the same three pages can produce two opposite outcomes depending on roughly two hundred words of drafting.

The good outcome looks like this. You sign a Letter of Intent stating a base rent of, say, $32 per square foot with 3% annual escalations, a seven-year term, a $55 per square foot tenant improvement allowance, four months of free rent during buildout, and 6,200 rentable square feet at a 1.15 load factor. The document says in bold, near the top, that nothing in it obligates either party to lease anything, and that only a fully executed lease agreement creates that obligation — except for a short list of provisions that are expressly binding. Over the next four to eight weeks, lawyers turn those terms into a fifty-page lease. Your attorney finds problems: the landlord's draft lets them relocate you, caps their HVAC obligation at nothing, and defines "operating expenses" to include capital replacements. You negotiate those out. If the negotiation collapses, you walk, your good-faith deposit comes back, and you have spent maybe $4,000 in legal fees rather than committing to a seven-year obligation worth roughly $1.4 million in gross rent.

The bad outcome is the same document with the binding language missing. You sign something that says "Tenant shall lease the Premises on the following terms," attach a deposit, and then start measuring for furniture. The landlord's lease draft comes back with terms you cannot live with. You try to walk. The landlord's counsel writes a letter arguing that the LOI, the deposit, and your conduct together formed an enforceable agreement, and that your refusal to execute the long-form lease is a breach. Whether they win depends on the jurisdiction and the specific facts, but the point is that you are now litigating a question you could have foreclosed with one sentence.

The realistic middle outcome — the one most tenants actually get — is an LOI that is non-binding enough to escape but weak enough that it gives away the negotiating position. The landlord's standard LOI form omits the no-shop, stays silent on relocation and co-tenancy, describes the TI allowance as "landlord's building standard buildout," and sets no outside date for lease delivery. Nothing in it traps you. But nothing in it helps you either, and every clause you failed to name becomes a fresh fight during lease negotiation, at a moment when you have already spent money and told your team the move is happening. Leverage is highest before you are committed; the LOI is the last document you sign while that is still true.

Expect the whole LOI cycle to take one to three weeks of back-and-forth for a straightforward single-tenant suite, and three to six weeks for anything involving multiple floors, complex buildout, or a landlord with an institutional approval chain. Expect two to four rounds of redlines. Expect the landlord's first draft to be one-sided, because it always is — that is not bad faith, it is just their form.

What drives that outcome

Enforceability of a Letter of Intent is not a fixed property of the document type. It is an outcome produced by three inputs: the words used, the conduct of the parties, and the law of the jurisdiction. Understanding how those three interact tells you exactly where to spend your drafting effort.

The words matter most, and they matter in two directions. The first is the explicit statement of intent. Courts generally give effect to a clear declaration that the parties do not intend to be bound until a definitive agreement is executed. That is why the single highest-value sentence in any LOI is some version of: *"This Letter of Intent is a non-binding expression of interest. Neither party shall be bound to lease or to any term stated herein unless and until a definitive lease agreement has been fully executed and delivered by both parties, except for the provisions expressly identified as binding in Section X below."* The second direction is the operative verbs scattered through the rest of the document. A page that declares itself non-binding at the top but then says "Tenant shall pay," "Landlord agrees to deliver," and "the parties have agreed" throughout is sending mixed signals, and a court reading the whole document may weigh the operative language against the disclaimer. Use conditional framing in the body: "the lease will provide that," "the parties intend that," "the proposed base rent is."

Conduct matters second. Partial performance is the classic route by which a supposedly non-binding document becomes enforceable in practice. If you take possession of the space, if you pay a month of rent, if the landlord starts demolition on your behalf, if you accept keys — a court in many jurisdictions will look at what the parties actually did and conclude that they behaved as if a lease existed. The doctrinal labels vary (part performance, promissory estoppel, contract implied in fact), but the practical rule is simple: do not occupy, do not pay rent, and do not let construction begin on the strength of an LOI alone. If timing genuinely requires early access — a common situation when a lease expiration is bearing down — paper it separately with a short early-access or license agreement that stands on its own and states its own terms.

Jurisdiction matters third and is largely outside your control. States differ on how readily they will find a preliminary agreement enforceable, on whether a duty to negotiate in good faith arises from a term sheet, and on how they treat an "agreement to agree" with open terms. Some jurisdictions recognize a category of binding preliminary commitment where the parties have agreed on the major terms and intended to be bound subject only to formalization. Because you cannot pick the doctrine, you compensate with drafting: the clearer the disclaimer, the less room there is for any of those doctrines to operate. The statute of frauds provides a partial backstop for longer leases in most states, since a lease over a year generally must be in writing and signed — but an LOI *is* a signed writing, so do not rely on the statute of frauds to save you from a document you signed.

There is a fourth input that gets less attention: who drafted the document. The drafting party sets the default, and defaults are sticky. If the landlord's broker sends the first LOI, every silence in it is a silence that favors the landlord — no no-shop, no relocation deletion, no outside date, no cap on operating expense pass-throughs. Redlining a one-sided form is harder than writing a balanced one, because each addition reads as a demand rather than a baseline. Where you can, send the first draft. A tenant-representation broker will do this for you, and their commission is typically paid by the landlord out of the deal, so the cost to you is generally zero.

Benchmarks and realistic ranges

Concrete numbers make an LOI negotiable. Vague language — "market rate," "building standard," "reasonable" — makes it a placeholder for a later argument. Here are the parameters worth pinning down and the ranges you will typically see, understanding that every one of them swings hard with market, submarket, asset class, and cycle.

Length and turnaround. A single-tenant office or retail LOI runs two to six pages. Below two pages you have almost certainly left material terms undefined. Above eight pages you are approaching a short-form lease, which is a legitimate structure but should be treated as one — with counsel — rather than as a term sheet. Expect two to four rounds of redlines over one to three weeks for simple deals.

Term. Small suites commonly run three to five years; larger footprints and heavier buildouts run seven to ten or longer, because the landlord needs a longer runway to amortize the improvement dollars. The relationship is direct and negotiable: more term buys more TI, more free rent, and lower escalations. If you want a shorter term, expect to pay for it in one of those three currencies.

Escalations. Fixed annual increases of 2% to 3% are the common structure in many office markets, though CPI-linked and stepped structures both appear. The compounding matters more than tenants expect. On a ten-year term, 3% annual escalation puts year-ten rent roughly 30% above year one, so a one-point difference in the escalator is worth real money over the life of the deal — negotiate it with the same energy you bring to the starting rent.

Tenant improvement allowance. Typically quoted in dollars per rentable square foot and frequently in the $30 to $80 range for second-generation office space, higher for first-generation shell or specialized use. What matters as much as the number is the mechanics: is it paid as a lump sum, in draws against invoices, or as landlord-managed construction? Is unused allowance forfeited, applied to rent, or refunded? Is there an amortized additional allowance available at a stated interest rate? Name all of that in the LOI or you will inherit the landlord's answer.

Free rent. Often expressed as a number of months of abated base rent, commonly aligned to the buildout period — two to six months is a typical band, longer in soft markets. Specify whether the abatement covers operating expenses and CAM or base rent only. "Four months free" that still bills you $9 per square foot of NNN charges is a materially different concession than four months of gross abatement.

Measurement. State both rentable and usable square footage and the load factor connecting them, and state the measurement standard being used. A 15% load factor versus a 20% load factor on a 5,000 usable square foot suite is a difference of roughly 250 rentable square feet — at $32 per foot, about $8,000 a year, or $56,000 over a seven-year term, for space you cannot occupy.

Exclusivity / no-shop. Thirty to sixty days is the typical ask. Shorter is safer for you if the landlord is slow, because a long exclusivity period with no reciprocal obligation locks you out of alternatives while they stall. The stronger structure is a shorter window — thirty to forty-five days — tied to milestones: the landlord delivers a draft lease within ten to fourteen days of LOI execution, and the exclusivity extends only while both parties are actively exchanging drafts.

Good-faith deposit. Commonly around one month's rent when one is used at all. The non-negotiable requirement is that it be fully refundable if the lease is not executed for any reason other than your bad faith. Never post non-refundable money at the LOI stage. If the landlord insists on non-refundable deposit money before a lease exists, that is a signal about how the rest of the deal will go.

Outside dates. State a target date for lease execution, a delivery date for the premises, and a rent commencement date keyed to delivery rather than to the calendar. Rent commencement tied to a fixed date rather than to actual delivery is one of the most expensive quiet terms in commercial leasing — if the landlord delivers ninety days late, you pay ninety days of rent on a space you cannot use.

Risks, edge cases, and failure modes

Silence on bindingness. The dominant failure. A document that never says whether it binds leaves the question to a judge, and the judge will look at the language and the conduct. Fix it with one bolded paragraph.

Economics binding, obligations loose. The mirror-image trap: an LOI that binds you to base rent, term, and square footage while describing the landlord's delivery condition, TI funding, and construction schedule in aspirational language. This is asymmetric in the worst direction — you are locked to the price and they are locked to nothing. If any economics are going to bind, the landlord's corresponding performance obligations must bind with the same specificity.

Partial performance before execution. Moving in, paying rent, or starting buildout on the strength of an LOI creates facts a court can build a contract from, and it destroys your leverage regardless of the legal outcome. Once your servers are racked in the space, you are not walking. If early access is unavoidable, paper it as a standalone license with its own terms and its own termination right.

Long exclusivity with no reciprocal duty. A sixty-to-ninety-day no-shop that binds only you is worse than no exclusivity at all. It removes your alternatives while preserving the landlord's ability to slow-walk. Always pair the exclusivity period with a landlord delivery obligation and an automatic expiration.

"Market standard" and "reasonable." Every undefined qualifier is a deferred argument you will have during lease negotiation, when your leverage is lower. "Building standard improvements" means whatever the landlord's construction manager says it means. Replace qualifiers with numbers, specifications, or an attached exhibit.

Unnamed clauses. If the LOI does not mention relocation, co-tenancy, exclusive use, assignment and subletting, HVAC responsibility and capital-repair allocation, operating-expense exclusions, holdover rate, or a termination right, the landlord's lease form will supply its own answer to each. Adding a protection to a draft lease is a concession request; carrying it forward from a signed LOI is administration. Name them.

Personal guaranty appearing later. A guaranty that never appears in the LOI and shows up in the lease draft is a common and expensive surprise, particularly for newer entities. If a guaranty is going to exist, negotiate its shape in the LOI — capped dollar amount, burn-off after a stated number of months of on-time payment, or limited to unamortized TI and commissions.

Broker and RevOps process gaps. On the tenant side, deal terms often live in a broker's inbox rather than in any system of record, which is exactly the kind of gap RevOps teams close for sales contracts. The same discipline applies: version the LOI, track which redline is current, log who approved which concession, and keep the executed copy somewhere your finance team can find it when the lease draft arrives and someone asks whether the TI number changed.

Multiple LOIs on the same space. Landlords do sometimes hold a second interested tenant. That is precisely what the no-shop addresses. Without one, your negotiated terms become a floor the landlord shops.

Assuming the LOI survives into the lease. It usually does, but the lease's integration clause will state that the lease supersedes all prior negotiations and agreements — including your LOI. Verify every negotiated term actually appears in the executed lease. A term that lived only in the LOI and never made it into the lease is, after signing, gone.

A practical rollout plan

Run the LOI as a defined process rather than an email thread. The sequence below covers a typical tenant-side deal from tour to execution.

Step one — define your requirements before you see a document. Write down the square footage range, the maximum total occupancy cost you can carry per month, the term you want, the buildout you need, and the three or four clause protections that are non-negotiable for your business. Bring that sheet into every conversation. Tenants who negotiate reactively against a landlord's form concede terms they never consciously evaluated.

Step two — engage tenant representation. A tenant-rep broker's commission is typically paid by the landlord from the deal, so representation generally costs you nothing directly. They will know the submarket's actual concession levels, which matters more than any published range.

Step three — send the first draft. Whoever drafts sets the defaults. Have your broker issue a tenant-favorable LOI containing the full economic package, the binding/non-binding split, the no-shop, the outside dates, and every clause protection you intend to demand.

Step four — have counsel review the bindingness language only. A full legal review at LOI stage is often not cost-justified, but a real estate attorney reading two pages for enforceability language is a small, high-value engagement. Ask them specifically: does this bind me to anything I do not intend to be bound by, and does it bind the landlord to the things I need bound?

Step five — negotiate in rounds, not one-offs. Bundle every open item into a single redline each round. Piecemeal requests train the counterparty to expect an endless stream and slow the deal.

Step six — execute, start the clock, and diarize the dates. On signature, the exclusivity window opens and the landlord's draft-lease deadline starts. Calendar both. If the draft lease is late, say so in writing — that is what the milestone was for.

Step seven — reconcile the lease against the LOI, line by line. When the draft arrives, run a term-by-term comparison. Every number, every date, every clause protection. Anything in the LOI that is absent or altered in the lease goes on a written exception list and gets resolved before signature.

Step eight — do not perform until the lease is executed. No possession, no rent, no construction, no move-in scheduling that you cannot unwind.

The discipline that makes this work is refusing to treat the LOI as a formality. It is the only document you sign while you still have the option to walk at zero cost, which makes it the only moment where your negotiating position is genuinely strong.

Related questions

Can I negotiate the LOI myself without a broker?

Yes, but the economics argue against it. Tenant-rep commissions are typically paid by the landlord out of the deal, so representation usually costs you nothing directly while adding submarket concession data you do not otherwise have.

Does a signed LOI stop the landlord from leasing the space to someone else?

Only if it contains an exclusivity or no-shop provision that is expressly binding. Without one, the landlord may continue marketing the space and may use your terms as a floor with competing prospects.

How long should the exclusivity period be?

Thirty to forty-five days is usually the right window, tied to a landlord obligation to deliver a draft lease within ten to fourteen days. Longer periods lock you out of alternatives while the landlord stalls.

What happens to my deposit if the lease never gets signed?

If the LOI is drafted correctly, it is returned in full. Insist on express language that any good-faith deposit is fully refundable unless you walk in bad faith, and never post non-refundable money before a lease exists.

Is a term sheet the same thing as an LOI?

Functionally yes in commercial leasing — both summarize deal terms before the lease is drafted. The name carries no legal weight; enforceability turns on the language inside the document, not what it is titled.

FAQ

Is a Letter of Intent legally binding?

Generally the business terms are not, but specific provisions can be. The standard structure makes rent, term, TI allowance, and contingencies non-binding until a definitive lease is executed, while making confidentiality, exclusivity, and governing law binding from signature. Enforceability turns on the document's explicit language and the parties' conduct rather than on the label "Letter of Intent," so a document that never addresses bindingness and is followed by deposits or possession can be argued into an enforceable agreement.

What terms belong in an LOI?

Base rent and escalations, term length and renewal options, tenant improvement allowance and how it is disbursed, free rent period, rentable and usable square footage with the load factor, permitted use, delivery condition, parking, and the outside dates for lease execution, delivery, and rent commencement. Beyond economics, name the clause protections you will demand in the lease — relocation deletion, co-tenancy, exclusive use, assignment and subletting rights, HVAC and capital-repair allocation, and any termination right.

How long does an LOI negotiation take?

One to three weeks for a straightforward suite with two to four rounds of redlines, and three to six weeks for larger footprints, complex buildouts, or landlords with institutional approval chains. Speed correlates with how complete the first draft is; documents that leave material terms as "to be determined" generate extra rounds.

Can I walk away after signing an LOI?

Yes, if the document is drafted with a clear non-binding clause and you have not performed. The risk comes from partial performance — taking possession, paying rent, or letting buildout begin — which can support an argument that a contract was formed by conduct regardless of what the paper says. Walking may also cost you the relationship and the legal fees already spent, so treat it as a real but expensive option.

Do I need an attorney to review the LOI?

A narrow review is worth it even when a full one is not. Ask a real estate attorney to read the bindingness language and the binding-provision list specifically — a short engagement that catches the failure mode that costs the most. Full legal spend generally waits for the lease draft, where fifty pages of landlord-form language actually needs the scrutiny.

What happens after the LOI is executed?

The landlord's counsel drafts the lease from the LOI terms, typically within one to three weeks. You then reconcile that draft against the LOI term by term, because the lease's integration clause supersedes the LOI entirely — anything negotiated but not carried forward disappears at signing. Expect two to four rounds of lease redlines before execution.

Sources

• https://www.cbre.com/insights
• https://www.jll.com/en-us/insights
• https://www.cushmanwakefield.com/en/insights
• https://www.naiop.org/research-and-publications/
• https://www.boma.org/
• https://www.irem.org/
• https://www.americanbar.org/groups/real_property_trust_estate/
• https://www.sba.gov/business-guide/manage-your-business/buy-assets-equipment
• https://www.nar.realtor/commercial

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