A letter of intent (LOI) is a preliminary document outlining the proposed key business terms of a lease — base rent, lease term, TI allowance, renewal options, and other major deal points — submitted before the formal lease is drafted. Most LOIs are explicitly non-binding on the core business terms, though certain provisions like confidentiality or exclusivity periods can be binding.
What an LOI typically includes
A well-drafted LOI covers all the major economic and structural terms of the eventual lease: base rent and escalation schedule, lease term and any renewal options, TI allowance amount, security deposit, permitted use, and any tenant-specific requirements like signage rights or expansion options. Getting these terms aligned in the LOI stage prevents costly renegotiation once attorneys begin drafting the full lease.
Negotiating the LOI is typically faster and less expensive than negotiating a full lease, since it's a shorter document focused on business terms rather than detailed legal language — making it the efficient place to work out disagreements before legal drafting costs are incurred.
Binding vs non-binding LOI provisions
| Provision type | Typically binding? |
|---|---|
| Core business terms (rent, term, TI) | Non-binding — subject to final lease |
| Exclusivity/negotiation period | Often binding for a defined window |
| Confidentiality | Often binding |
| Broker commission acknowledgment | Often binding |
What to watch for before committing
Binding vs non-binding clarity
Confirm which specific provisions are binding — don't assume the entire document is non-binding just because the core terms are.
Exclusivity period length
If the LOI includes an exclusivity period taking the space off-market, confirm its length matches your realistic timeline to finalize the lease.
Completeness of major terms
Include all significant business terms in the LOI — anything left out risks becoming a renegotiation point once the full lease is drafted.
Deposit or good-faith payment
Clarify whether any deposit accompanying the LOI is refundable if the parties don't reach a final lease agreement.
Timeline to lease execution
Set a target timeline for moving from LOI to signed lease, since open-ended negotiations can stall momentum on both sides.
Contingencies
Include necessary contingencies — financing, zoning verification, due diligence period — that allow you to exit if conditions aren't met.
When you need to know this
- Starting lease negotiations — establishing agreed-upon business terms before costly legal drafting begins
- Competing for popular space — signaling serious intent to a landlord considering multiple prospective tenants
- Securing an exclusivity period — taking a property off the market while finalizing due diligence and lease terms
- Aligning stakeholders internally — giving internal decision-makers a clear summary of proposed terms before full legal review
Frequently asked questions
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