Why the Letter of Intent Is Important

In a commercial real estate transaction, the Letter of Intent (LOI) is often treated as a preliminary formality. In reality, it is the most strategic document in the entire process. Long before attorneys draft a lease or purchase agreement, the LOI determines the economics, leverage, flexibility, and risk allocation of the deal. By the time legal documents are prepared, the outcome is largely decided.

Understanding the importance of the LOI is essential for tenants, buyers, and decision-makers who want to protect their interests and avoid costly mistakes.

The LOI Is Where the Deal Is Made

Despite its “non-binding” label, the LOI is where the core business terms are agreed upon. It establishes the financial framework of the transaction, including rent or purchase price, lease term, escalations, tenant improvement allowances, free rent, and the operating expense structure. These terms are rarely improved later.

In practice, the lease or purchase agreement does not renegotiate the deal; it documents what was already agreed to. Attempting to walk back LOI terms during legal drafting often damages trust, delays execution, and can derail negotiations. In many transactions, the LOI effectively becomes the deal, with the lease serving as the execution document.

A clear and detailed LOI aligns expectations early, reduces friction, and creates a roadmap for legal documentation—saving time, money, and credibility.

Leverage Is Highest at the LOI Stage

The LOI stage is the only point in the transaction where leverage is fully intact. Before the LOI is signed, there are no sunk costs, legal fees, or timing pressures. After execution, momentum shifts as consultants are engaged, attorneys begin drafting, and internal approvals are pursued.

A well-structured LOI locks in favorable terms before leverage erodes. A rushed or incomplete LOI surrenders negotiating power far earlier than necessary.

Attorneys Paper the Deal—They Don’t Renegotiate It

One of the most common misconceptions is that attorneys can “fix” issues later in the lease. While changes may be possible, they are often costly and difficult to achieve. In reality, attorneys paper the deal, they do not renegotiate economics or core business terms.

If critical protections are not addressed in the LOI, lease documents will typically default to landlord “standard” or boilerplate language. This makes provisions such as assignment and subleasing rights, termination options, expansion or contraction rights, operating expense caps, renewal terms, parking rights, and use provisions far more difficult, and expensive to negotiate later.

These are business decisions, not legal technicalities, and they belong in the LOI. Ambiguous or overly simple LOIs frequently lead to surprises during lease drafting, re-trades, delayed closings, or failed transactions – all of which are largely avoidable.

Flexibility Is Won or Lost at the LOI Stage

Flexibility is one of the most valuable—and most overlooked—components of a commercial real estate deal. Termination rights, subleasing flexibility, expansion options, contraction rights, and renewal controls must be negotiated early.

Once the LOI is signed, flexibility becomes difficult to add. In uncertain markets, flexibility can be more valuable than short-term rent concessions, making the LOI the critical moment to secure it.

Final Takeaway

The Letter of Intent is not a formality. It is a critical document because it establishes the economic foundation of the transaction, preserves leverage, manages risk, and defines long-term flexibility.

By the time attorneys receive the LOI, most meaningful decisions have already been made. The lease reflects the LOI, and the outcome of the transaction is determined long before signatures are applied.

Investing time and expertise at the LOI stage is not optional, it is essential.