What is an LOI in Commercial Real Estate?

In the fast-paced world of commercial real estate, clear communication is key to successful deals and that’s where an LOI, or Letter of Intent, comes in. Whether you’re a landlord leasing office space, retail space, or a unit in a shopping center or strip mall, the LOI is a critical first step in shaping a lease agreement with prospective tenants.

What is an LOI (Letter of Intent)?

An LOI is a non-binding document that outlines the key business terms agreed upon by both parties before the formal lease is drafted. It’s essentially a “pre-agreement” that shows both the landlord and tenant are serious about moving forward with the deal. An LOI represents the intent to enter into a future agreement in this case, a lease and provides a framework for the negotiation process.

Why Use an LOI in Commercial Leasing?

The LOI streamlines lease negotiations by establishing the major deal points early. This saves time, reduces legal costs, and helps avoid miscommunication. It’s commonly used for deals involving storefronts, office space, and grocery-anchored centers, giving both parties confidence before investing time and money into a formal lease.

What’s Included in a Commercial Real Estate LOI?

While each LOI varies by asset type whether it’s retail space in a strip mall or a floor of office space most include key terms such as the property’s size, location, and use; lease duration (typically 3, 5, or 10 years); and financial details like base rent, escalations, CAM charges, and security deposit. They also outline responsibilities for tenant improvements, include a good guy guarantee when applicable, and may address exclusivity or co-tenancy clauses, subleasing rights, and a clear statement that the LOI is non-binding.

LOI vs Lease: What’s the Difference?

An LOI is not a legally binding document (with limited exceptions, such as confidentiality), whereas a lease is a fully binding legal document. Think of the LOI as a handshake in writing it shows intention, opens negotiation, and lays the foundation for the formal lease.

How Brokers Help with LOIs

A seasoned commercial real estate broker plays a crucial role in drafting and negotiating the LOI. Brokers help both tenants and landlords ensure that the LOI reflects market standards, protects their interests, and sets up a successful lease. They also provide market insights that can inform rental rates, concessions, and strategic positioning in commercial properties or shopping centers.

 

East Coast Leasing with Milbrook Properties

The LOI is more than a formality it’s a vital tool in commercial leasing. Whether you’re leasing retail space, office space, or managing a strip mall, using a well-crafted LOI helps ensure smooth negotiations, clearer expectations, and better long-term outcomes for both landlords and tenants.