How to Write a Strong Letter of Intent — And How to Use It as a Negotiating Tool

What an LOI Is — And What It Isn't

A letter of intent is a non-binding summary of the key economic and business terms of a proposed lease. It outlines the fundamental deal: who's leasing what, for how long, at what rent, with what concessions, and under what key conditions.

The critical word is non-binding. An LOI is explicitly not a lease. It does not legally obligate you to take the space, and it does not legally obligate the landlord to lease to you on the stated terms. Either party can walk away after signing an LOI without legal consequence in most circumstances — though doing so without cause can damage the relationship and your reputation in the market.

What the LOI does is create a shared understanding of the deal and serve as the blueprint from which the lease is drafted. Once you've signed an LOI, the lease negotiation is largely about the legal language around the business terms you've already agreed to — not about reopening the economics. This is why getting the LOI right matters so much. The terms you lock in at the LOI stage are the terms you're stuck with.

What Should Be in Your LOI

A well-drafted LOI covers every material business term so that nothing important is left open for the landlord's lease team to fill in on their terms. Here's what should be addressed:

Premises: The exact space being leased — building address, suite number, and square footage. If the square footage will be measured after signing, specify who measures it and what standard applies.

Lease Term: Start date and end date. If the commencement date is contingent on build-out completion, specify how it's determined and what happens if construction runs long.

Base Rent: The starting rent, the escalation schedule, and the escalation trigger (typically annual on the lease anniversary). Spell out every year's rent if possible — "3% annual escalations" is less precise than a full rent schedule.

Free Rent: The number of months of rent abatement and exactly when they apply (typically at the beginning of the lease, but sometimes staggered).

Tenant Improvement Allowance: The per-square-foot dollar amount, the scope of what it covers, the disbursement process, and any deadline for spending it. Specify whether unused TI can be applied as additional free rent.

Permitted Use: What your business is allowed to do in the space. Be specific enough to cover your actual operations without being so narrow that you're constrained if your business evolves.

Parking: Number of spaces, reserved vs. unreserved, monthly cost (if any), and location.

Options: Renewal options (number of periods, duration, rent mechanism), expansion options, right of first offer or first refusal on adjacent space, and early termination rights. Every option you want must be spelled out in the LOI — do not assume they'll appear in the lease if they're not in the LOI.

Landlord's Work: If the landlord is delivering the space in a specific condition — warm shell, cold dark shell, or with specific improvements already completed — document it here.

Exclusivity: Whether the landlord will take the space off the market while the lease is being negotiated. This is worth pushing for on any serious deal.

Due Diligence Period: The timeframe during which you can inspect the space and conduct your review before the lease is finalized.

Conditions: Any contingencies that must be satisfied — financing, board approval, permit clearance, or anything else that conditions your obligation to proceed.

How to Use the LOI as a Negotiating Tool

Here is the strategic reality of a commercial lease negotiation: the economics are nearly always set at the LOI stage. Base rent, TI, free rent, term, and options are negotiated between the landlord's broker and your broker before the LOI is drafted. Once it's signed, the lease negotiation is primarily about legal protections — assignment rights, default provisions, indemnification, insurance requirements — not about reopening the rent.

This means your negotiating leverage is highest before you sign the LOI, and it declines significantly afterward. The way to use that leverage is to be disciplined about the LOI process:

Run a competitive process. The strongest LOIs come out of situations where the tenant has multiple proposals from multiple landlords. A landlord who knows you have a competing offer at comparable terms will negotiate harder to win your tenancy than a landlord who believes they're your only option. Your broker should be running a structured RFP to generate genuine competition.

Don't sign until every term is agreed. The landlord's team will sometimes push for a quick LOI signature with the suggestion that remaining details can be worked out in the lease. Resist this. Once you've signed, you've signaled commitment and your leverage drops. Keep negotiating until the LOI reflects every term you care about.

Be specific, not vague. Vague LOI language — "rent to be determined at fair market value," "TI allowance subject to scope" — is a gift to the landlord. It leaves the economics open for the lease phase, where you have less leverage and the landlord's attorneys are drafting the language. Get specific numbers in the LOI.

Protect your options. Every option — renewal, expansion, termination — must be named in the LOI with enough specificity that the landlord can't argue later that the details were never agreed to. "Tenant shall have one five-year renewal option at fair market rent" is better than nothing but still leaves rent open. "Tenant shall have one five-year renewal option at the greater of then-current rent or 95% of fair market rent" gives you more protection.

A Few Things to Watch For

Exclusivity: Some LOIs are non-exclusive — meaning the landlord can continue showing the space and negotiating with other tenants while you're drafting the lease. Always request exclusivity during the lease negotiation period, typically 30 to 60 days.

Binding provisions: Even though LOIs are generally non-binding, some provisions are often carved out as binding — confidentiality, exclusivity, and sometimes broker compensation. Read those provisions carefully.

LOIs as leverage with your current landlord: If you're negotiating a renewal, having a signed LOI from a competing landlord is enormously powerful. It transforms your negotiating position from theoretical to concrete. Your current landlord must take the possibility that you'll actually leave seriously.

The Bottom Line

The LOI is where deals are made or lost. It's the moment when your leverage is highest and the terms are most negotiable. Approach it strategically — with competing options, specific language, and patience — and you'll enter the lease phase with a deal you're confident in. Approach it casually, and you'll spend months in a lease negotiation trying to recover ground you gave away in the LOI.