Before a formal commercial lease is drafted, landlords and tenants often exchange a Letter of Intent (LOI) outlining the deal’s key terms. Many businesspeople treat an LOI as a casual, non-binding formality — but depending on how it’s drafted, an LOI can create real legal obligations well before a formal lease is ever signed.
What an LOI Is Supposed to Do
A Letter of Intent typically summarizes the fundamental business terms both parties have agreed to in principle — rent, term length, square footage, use, and major concessions like a tenant improvement allowance — before the parties invest time and legal fees drafting a full lease. Its purpose is to confirm alignment on the big-picture deal before getting into the details.
The Non-Binding Assumption Is Not Automatic
Many people assume an LOI is inherently non-binding simply because it’s labeled a “letter of intent” rather than a “lease.” This isn’t reliably true. Whether an LOI creates binding obligations depends on its actual language and, in some cases, the parties’ subsequent conduct — not the document’s title.
Language That Can Make an LOI Binding
- Specific, definite terms presented as an agreement rather than a proposal
- Language like “the parties agree” rather than “the parties intend” or “subject to a definitive lease agreement”
- The absence of a clear statement that the document is non-binding and subject to a future definitive agreement
- In some cases, exclusivity or “no-shop” provisions, which are often intentionally binding even within an otherwise non-binding LOI
Best Practice: Say Explicitly What’s Binding and What Isn’t
The safest approach — for both landlords and tenants — is to state directly in the LOI which provisions are binding and which are not. It’s common, and advisable, for certain provisions (confidentiality, exclusivity/no-shop periods, allocation of due diligence costs) to be intentionally binding, while the substantive deal terms remain expressly subject to negotiation and execution of a definitive lease.
Exclusivity (No-Shop) Provisions
Many LOIs include a period during which the landlord agrees not to negotiate with other prospective tenants for the same space, giving the tenant time to complete due diligence and negotiate the full lease without a competing party creating pressure. These provisions are typically intended to be binding even when the rest of the LOI isn’t — worth confirming explicitly.
Why This Matters for Negotiating Leverage
An LOI that locks in key terms too early — before a tenant has fully evaluated the space, use restrictions, or zoning compliance for an intended use — can limit a tenant’s negotiating flexibility once the full lease drafting process begins, even if the LOI is technically non-binding on paper. Parties often feel bound in practice by terms already agreed to in an LOI, regardless of formal enforceability.
Have the LOI Reviewed Before Signing
Because an LOI can shape — and sometimes legally bind — the terms of a much larger, longer-term agreement, it deserves legal review before signing, not just before the full lease is drafted. Identifying binding language early avoids being locked into unfavorable terms before formal lease negotiation even begins.
Received a Letter of Intent for a commercial space and want to understand what you’re actually agreeing to? Brent A. Levison, P.A. reviews LOIs before they become binding commitments. Contact the firm today for a consultation.
The information in this article is provided for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please consult a qualified attorney.