What Is a Letter of Intent?
A letter of intent (LOI) is a preliminary document that sets out the main terms of a proposed deal before the parties sign a definitive, binding agreement. It signals serious intent, gets the key commercial points on paper, and gives both sides a shared reference before lawyers draft the full contract.
Is a Letter of Intent Binding?
This is the most important and most misunderstood part of an LOI. In most cases the commercial terms are intentionally non-binding — either side can still walk away. But most LOIs also contain specific provisions that are meant to bind immediately:
- Confidentiality — protecting information exchanged during diligence.
- Exclusivity (or "no-shop") — the seller agrees not to negotiate with others for a set period.
- Governing law and dispute resolution — which jurisdiction's rules apply.
- Costs and expenses — who pays for what if the deal doesn't close.
Critically, courts generally look at the document's actual language and the parties' conduct, not just a "non-binding" label at the top. An LOI written with enough specificity and commitment can be treated as an enforceable agreement. The safest practice is to state explicitly which sections bind and which do not.
What's Typically in a Letter of Intent?
| Section | What it covers |
|---|---|
| Parties and subject | Who is involved and what asset, business, or space is being transacted. |
| Price or economic terms | Purchase price, rent, payment structure, deposits, or escrow arrangements. |
| Key dates | Diligence period, target signing date, and expected closing or commencement. |
| Conditions | Financing, inspections, approvals, or other contingencies that must be satisfied. |
| Binding provisions | Confidentiality, exclusivity, governing law, and expense allocation. |
| Expiration | How long the offer stands before it lapses. |
How Are LOIs Used in Commercial Real Estate?
LOIs are a standard step in commercial real estate, where lease and purchase negotiations involve too many moving parts to jump straight to a definitive document. In a CRE lease, an LOI commonly captures the proposed rent and escalations, term length and renewal options, tenant improvement allowance, free rent periods, security deposit, and permitted use — so both sides align on economics before counsel drafts the lease.
On the acquisition side, an LOI typically frames the purchase price, deposit structure, due diligence window, and closing timeline. Because a single property deal can generate an LOI, a purchase and sale agreement, amendments, and estoppels, keeping the LOI connected to the documents that follow it matters for the eventual audit trail.
What Should Teams Watch Out For?
- Ambiguity about what binds. If the LOI doesn't clearly separate binding from non-binding sections, that ambiguity is where disputes start.
- Exclusivity periods that run too long. A no-shop clause takes a property or business off the market — the duration should match a realistic diligence timeline.
- Terms that quietly change later. When the definitive agreement drifts from the LOI without anyone flagging it, the parties can end up signing something materially different from what they agreed.
- Losing the LOI entirely. LOIs often live in email, so by the time a dispute arises nobody can find the version that was actually signed.
How CLM Supports the LOI Stage
Because an LOI is the first document in a deal rather than the last, it's frequently the one that never makes it into a system of record. A CLM platform can capture the signed LOI alongside the agreement that supersedes it, track exclusivity and diligence deadlines as real dates rather than calendar reminders, and preserve the link between proposed terms and final executed terms. CAMARC supports this workflow for real estate and commercial transaction teams, but it does not replace legal counsel — LOI drafting and enforceability questions should go to a qualified attorney. See CAMARC's real estate contract management guide for how the surrounding document set is handled.
Frequently Asked Questions
Is a letter of intent legally binding?
Usually the commercial terms are not binding, but most LOIs contain specific provisions that are, such as confidentiality, exclusivity, governing law, and who pays costs. Whether a court treats an LOI as binding depends on its actual wording and the parties' conduct, not just a label, so the binding and non-binding sections should be stated explicitly.
What's the difference between an LOI and a contract?
An LOI records the terms the parties intend to agree on and frames the next stage of negotiation. A contract creates enforceable obligations. An LOI is typically a step toward a definitive agreement rather than a substitute for one.
What is an LOI used for in commercial real estate?
In CRE, LOIs are commonly used to set out proposed lease or purchase terms — rent or price, term length, deposits, improvement allowances, contingencies, and a due diligence period — before counsel drafts the definitive lease or purchase agreement.
What's the difference between an LOI and a term sheet?
They serve a similar purpose. An LOI is usually written in letter form and may include more narrative context, while a term sheet is typically a bulleted list of deal points. Both precede the definitive agreement, and the practical distinction is often stylistic.
Should a lawyer review a letter of intent?
It's worth doing, particularly where the LOI includes exclusivity, confidentiality, or deposit obligations. Because poorly drafted LOIs can create unintended binding commitments, legal review before signing is generally cheaper than resolving a dispute later.
This glossary entry provides general information, not legal advice. Whether a letter of intent creates binding obligations depends on its specific wording, the parties' conduct, and applicable law in your jurisdiction.