A preliminary, typically non-binding agreement outlining the key business terms of a commercial lease or property purchase before formal legal documents are drafted. In CRE transactions, the LOI establishes rent/price, term, tenant improvements, exclusivity periods, and contingencies-creating the framework that attorneys use to draft the definitive lease or purchase agreement.
Why CRE Deals Start With an LOI
Tenant/buyer proposes terms
Counter-offers exchanged
Terms locked (usually non-binding)
Attorneys document the deal
Commercial lease/purchase documents can cost $5,000-$25,000+ in legal fees. The LOI ensures both parties agree on business terms BEFORE spending money on attorneys. Negotiate the LOI carefully-terms set here become your negotiating floor.
For Tenants & Landlords
Commercial Lease LOI Provisions
Must Include:
Sample Language:
"Base Rent: $28.00/SF/year NNN, with 3% annual escalations. Estimated NNN charges: $8.50/SF/year, subject to CAM cap of 5% annual increase."
Must Include:
Sample Language:
"Initial Term: 5 years. Two (2) five-year renewal options at 95% of then-prevailing FMV, exercisable with 9 months' notice."
Key Terms:
Sample Language:
"Landlord shall provide TI allowance of $45.00/SF. Tenant-managed buildout. Unused allowance may be applied to rent. Allowance expires 12 months after lease execution."
Typical Structures:
Sample Language:
"Tenant shall receive 4 months of Base Rent abatement, applied to months 1-4. Tenant responsible for NNN during abatement period."
Key Terms:
Sample Language:
"Permitted Use: Coffee shop and cafe. Exclusive: No other tenant in the center shall sell coffee as a primary use. Landlord represents no existing exclusive conflicts."
For Buyers & Sellers
CRE Purchase LOI Provisions
"Purchase Price: $4,250,000. Deposit: $100,000 within 3 business days of LOI execution, refundable during Due Diligence Period."
"Due Diligence Period: 45 days from PSA execution. Buyer may terminate for any reason during DD Period and receive full refund of Deposit."
"PSA to be executed within 10 business days. Closing: 30 days after DD Period expiration. One 15-day extension available for $25,000 non-refundable deposit."
Sample Document
Commercial Lease LOI Template
[Date]
[Landlord Name]
[Address]
Re: Letter of Intent - [Property Address]
Dear [Landlord/Representative]:
This Letter of Intent ("LOI") sets forth the principal terms upon which [Tenant Name] ("Tenant") proposes to lease space from [Landlord Name] ("Landlord") at the above-referenced property. This LOI is non-binding except for the provisions expressly stated as binding below.
1. PREMISES
Approximately [_____] rentable square feet located at [Suite/Unit].
2. LEASE TERM
Initial Term: [___] years, commencing on [Date or "Substantial Completion of TI"].
Renewal Options: [Number] option(s) of [___] years each at [FMV/Fixed Rate/% Increase].
3. BASE RENT
Year 1: $[___]/SF/year ([NNN/Modified Gross/Full Service])
Escalations: [___]% annual increase OR CPI-based adjustment
4. ADDITIONAL RENT (NNN)
Estimated: $[___]/SF/year for property taxes, insurance, and CAM.
CAM Cap: Annual increases not to exceed [___]% (controllable expenses only).
5. TENANT IMPROVEMENT ALLOWANCE
Landlord shall provide $[___]/SF for tenant improvements.
Buildout managed by: [Landlord/Tenant]
Unused allowance: [Forfeited/Applied to Rent/Paid to Tenant]
6. FREE RENT
[___] months of Base Rent abatement, applied to months [___].
7. SECURITY DEPOSIT
$[___] (equivalent to [___] months' rent), reduced to [___] months after Year [___] if no defaults.
8. PERMITTED USE
[Specific use description] and any lawful related uses.
9. EXCLUSIVITY (Binding)
Landlord agrees not to negotiate with other parties for the Premises for [___] days from LOI execution.
10. CONFIDENTIALITY (Binding)
Both parties agree to keep the terms of this LOI confidential.
11. LOI EXPIRATION
This LOI expires if not signed by both parties by [Date].
This LOI is intended to facilitate negotiations and, except for Sections 9, 10, and 11, is not intended to create any binding obligation on either party.
TENANT:
_______________________
Signature / Date
LANDLORD:
_______________________
Signature / Date
Avoid These
CRE LOI Mistakes That Cost Money
"Landlord will provide standard buildout" means nothing. Specify exact $/SF, who manages construction, what's included (HVAC, electrical, flooring), and what happens to unused allowance.
NNN charges can balloon unpredictably. Always negotiate a cap on controllable CAM increases (typically 3-5% annually). Without this, your Year 5 occupancy cost could be 30% higher than projected.
If landlord requires a personal guaranty, negotiate its scope in the LOI. Push for: limited duration (burns off after Year 2-3), capped amount, or "Good Guy" guaranty that ends if you vacate properly.
"Renewal at fair market value" invites disputes. Specify: how FMV is determined, what comparables are used, whether there's a floor/ceiling, and the notice period required.
If you might sell your business, you need the right to assign the lease. Negotiate this in the LOI-landlords often resist adding it later. At minimum, get assignment to affiliates and potential acquirers.
Pro Tips
CRE LOI Negotiation Strategy
CRE letters of intent have unique terms around lease assignments, CAM caps, and exclusivity. Our attorneys review the language before you commit.
Request CRE LOI Review →