Commercial Real Estate Letter of Intent Template
What a Letter of Intent Actually Does in CRE
A Letter of Intent is the opening move in a commercial real estate transaction. It is not a contract. It is a structured proposal that communicates the buyer's (or tenant's) material business terms to the seller (or landlord) in enough detail that both parties can determine whether there is sufficient alignment to justify the time and legal expense of negotiating a definitive agreement — a purchase and sale agreement for acquisitions, or a ground lease for land transactions.
The LOI serves three critical functions. First, it crystallizes the deal terms that matter — price, earnest money, due diligence period, financing contingencies, and closing timeline — before attorneys get involved. This prevents the expensive scenario of lawyers negotiating business points at $500 to $800 per hour. Second, it establishes exclusivity, taking the property off the market while you spend money on due diligence. Third, it creates a written record of the agreed-upon terms that becomes the instruction set for the attorneys drafting the definitive documents. A well-drafted LOI can cut PSA negotiation time from 4 weeks to 10 days.
The LOI is typically 2 to 5 pages — long enough to cover every material term, short enough that a principal can read and respond in a day. In competitive bid situations, the quality and specificity of your LOI directly influences whether you get the deal. Vague LOIs signal inexperience. Detailed, market-informed LOIs signal a buyer who can actually close.
Binding vs. Non-Binding: What You Need to Know
The majority of CRE LOIs are structured as non-binding, with two critical exceptions: the exclusivity (no-shop) provision and the confidentiality provision. These two clauses are intentionally made binding and enforceable because they protect the buyer's investment in due diligence and the seller's proprietary information.
The exclusivity clause prevents the seller from entertaining competing offers during the negotiation period — typically 30 to 60 days for acquisitions and 60 to 90 days for ground leases. Without it, you risk spending $25,000 to $75,000 on third-party reports and legal fees only to lose the deal to a higher bidder. The confidentiality clause protects both parties: the seller's financial information and the buyer's investment thesis and pricing.
Courts have occasionally enforced LOIs as binding contracts when the non-binding language was absent or ambiguous. This is why experienced practitioners include an explicit statement: “This LOI is not intended to create and shall not be deemed to create a binding agreement between the parties, except with respect to the exclusivity and confidentiality provisions set forth herein.” If this sentence is missing from your LOI, add it.
Key LOI Terms and Standard Market Ranges
Earnest money deposits typically range from 1 to 3 percent of the purchase price for institutional transactions and 2 to 5 percent for private deals. The deposit is held in escrow and applied toward the purchase price at closing. The critical negotiation point is not the deposit amount but when it goes hard — the date on which it becomes non-refundable. Standard practice is for the deposit to go hard at the expiration of the due diligence period. Sellers in competitive markets may demand Day 1 hard money (deposit goes non-refundable at PSA execution) to weed out non-serious buyers.
Due diligence periods vary by deal complexity: 30 days for stabilized assets with clean environmental and title histories, 45 to 60 days for value-add or repositioning deals, and 60 to 90 days for development sites requiring entitlement review, geotechnical investigation, and environmental remediation scoping. The DD period should be long enough to receive all third-party reports — Phase I ESA turnaround is 3 to 4 weeks, ALTA surveys take 3 to 4 weeks, and property condition assessments take 2 to 3 weeks.
Financing contingencies give the buyer the right to terminate if they cannot secure debt on acceptable terms. Most sellers accept a financing contingency for the first 30 to 45 days. An all-cash offer or waiver of the financing contingency significantly strengthens a bid — in a competitive process, this can be the differentiator between winning and losing the deal.
How Ground Lease LOIs Differ Fundamentally
A ground lease LOI addresses an entirely different set of economics and risk allocation than an acquisition LOI. Instead of a one-time purchase price, the core economic term is the annual ground rent and its escalation structure over a 50 to 99 year term. Instead of a due diligence period focused on existing conditions, the ground lease tenant is evaluating whether the site can support their proposed development — zoning, geotechnical suitability, utility capacity, and entitlement feasibility.
The most heavily negotiated provisions in a ground lease LOI are the ones that do not exist in an acquisition context: leasehold mortgage rights (the tenant must be able to finance the development), mortgagee protections (the lender needs cure rights and a new lease if the ground lease is terminated), rent escalation mechanics (fixed, CPI, or fair market reappraisal — each with dramatically different long-term economics), development requirements (permitted use, height, density, construction deadlines), and reversion terms (what happens to the improvements at lease expiration).
Ground lease LOIs take longer to negotiate because both parties are committing to a multi-decade relationship. The landlord is betting that the tenant will develop a quality project that enhances the land value. The tenant is betting that the ground rent will remain manageable relative to the income the improvements generate. Getting the LOI right is critical because these terms become the framework for a lease document that will govern the relationship for 50 to 99 years.
Common LOI Mistakes That Kill Deals
The most common mistake is vagueness on earnest money going-hard mechanics. Stating “earnest money deposit of $100,000” without specifying when it becomes non-refundable, under what conditions it is refundable, and who holds it creates ambiguity that generates weeks of PSA negotiation and can torpedo a deal when the parties discover they had fundamentally different assumptions.
Not specifying the scope of due diligence is the second most common failure. An LOI that says “buyer shall have a 30-day due diligence period” without addressing seller document delivery obligations, property access rights, environmental testing rights, and the buyer's right to terminate for any reason during DD leaves critical questions unanswered. The seller may argue that DD was limited to document review. The buyer may assume they had full invasive testing rights. These disputes end deals.
Vague closing conditions are equally dangerous. “Closing contingent on buyer's satisfaction” gives the buyer an indefinite out but makes the seller unwilling to take the property off the market. Conversely, an LOI with no financing contingency from a buyer who has not verified their liquidity or lending relationships creates a false sense of certainty that unravels when the buyer cannot perform.
For ground lease LOIs specifically, the most consequential mistake is failing to address leasehold financing provisions. A ground lease that does not include mortgagee protections, lender cure rights, and a new lease provision is unfinanceable. If these provisions are not established at the LOI stage, the landlord has no incentive to agree to them during lease negotiation — and the tenant discovers the deal cannot be financed only after months of legal fees.
Standard Timeline from LOI to Closing
For a standard acquisition, the timeline from signed LOI to closing runs 60 to 120 days. The first 2 to 3 weeks are consumed by PSA negotiation and execution. Once the PSA is signed, the due diligence period begins (30 to 60 days). Financing and closing mechanics take an additional 2 to 4 weeks after DD contingencies are waived. The total timeline is heavily influenced by how detailed and well-negotiated the LOI was — a specific LOI translates to a faster PSA negotiation.
Ground lease transactions take significantly longer: 90 to 180 days from LOI to executed lease. The lease document is more complex than a PSA — typically 60 to 100 pages compared to 20 to 40 pages for a PSA — and requires negotiation of development rights, construction requirements, leasehold mortgage provisions, default and termination mechanics, and reversion terms. Each of these sections involves multiple rounds of drafting between counsel. Institutional landlords (universities, REITs, government agencies) often require internal committee approvals that add additional weeks.
Strengthening Your LOI in Competitive Situations
In a multi-bid scenario, the LOI is your pitch document. Price matters, but it is not the only variable. Sellers evaluate certainty of close, which is communicated through the specificity and credibility of your LOI. Include a brief buyer profile — entity name, principal experience, track record of closed transactions, and identified equity and debt sources. Demonstrate market knowledge by referencing comparable transactions and explaining your investment thesis.
Structural advantages that strengthen a bid: waiving the financing contingency (signals liquidity and commitment), shortening the DD period (signals experience and readiness), offering Day 1 hard money (signals conviction), and providing a proof of funds letter from your equity source or lender relationship. The strongest LOIs are the ones where the seller reads every term and thinks: this buyer will close.
Commercial Real Estate Letter of Intent Template
Free LOI template for commercial real estate acquisitions and ground leases. Fill in key deal terms — purchase price, earnest money, due diligence, financing contingencies, closing conditions — and export a clean PDF to send to sellers or landlords.
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Frequently Asked Questions
What is a Letter of Intent in commercial real estate?
A Letter of Intent (LOI) is a preliminary written proposal that outlines the material business terms of a proposed commercial real estate transaction before a formal purchase and sale agreement or lease is drafted. It establishes the framework for negotiation — purchase price, earnest money, due diligence period, financing contingencies, and closing timeline. The LOI is typically the first document exchanged between buyer and seller (or tenant and landlord) after initial verbal agreement on headline terms, and it serves as the instruction set for attorneys drafting the definitive agreement.
Is a commercial real estate LOI legally binding?
Most CRE LOIs are intentionally structured as non-binding, with two critical exceptions: the exclusivity (no-shop) provision and the confidentiality provision, which are typically binding and enforceable. The LOI itself should state clearly which provisions are binding and which are not. Courts have occasionally enforced LOIs as binding contracts when the language was ambiguous, which is why experienced practitioners include explicit non-binding disclaimers. The exclusivity period — usually 30 to 60 days — prevents the seller from negotiating with competing buyers while the parties work toward a definitive agreement.
What should a Letter of Intent include for commercial property?
A comprehensive CRE LOI should cover: (1) identification of the parties and property; (2) purchase price and form of consideration; (3) earnest money deposit amount, going-hard mechanics, and escrow terms; (4) due diligence period length and scope; (5) financing contingency terms or waiver; (6) closing timeline and conditions; (7) title and survey requirements; (8) representations the seller must make; (9) exclusivity and confidentiality provisions; (10) broker identification and commission allocation; (11) assignment rights; and (12) LOI expiration date. The more specificity in the LOI, the faster the PSA negotiation — vague LOIs generate expensive legal back-and-forth.
How is a ground lease LOI different from an acquisition LOI?
A ground lease LOI deals with fundamentally different economics and risk allocation. Instead of a purchase price, the key term is annual ground rent with escalation mechanics (fixed, CPI, or fair market reappraisals). The LOI must address development rights — permitted uses, building height, density, construction timelines, and landlord approval of plans. Leasehold financing provisions are critical because the tenant needs the ability to mortgage the leasehold interest, which requires landlord consent, mortgagee protection clauses, and subordination/non-disturbance agreements. Reversion terms — what happens to improvements at lease expiration — are among the most heavily negotiated provisions in ground lease transactions.
How long does it take to go from LOI to closing in CRE?
The typical timeline from executed LOI to closing is 60 to 120 days for a standard acquisition: 2 to 3 weeks for PSA negotiation and execution, 30 to 60 days for due diligence, and 2 to 4 weeks for financing and closing mechanics. Ground lease transactions take longer — 90 to 180 days — because the lease document is more complex than a PSA and requires negotiation of development rights, leasehold mortgage provisions, and reversion terms. The single biggest variable is how quickly attorneys can agree on the definitive documents, which is directly correlated to how detailed and well-drafted the LOI was.
Key LOI Terms Every Developer Should Know
Earnest Money & Going-Hard
Typically 1–3% of purchase price for institutional deals, 2–5% for private. The critical term is when the deposit becomes non-refundable. Standard: goes hard at DD expiration. Competitive: Day 1 hard money. Always specify the escrow holder and refund conditions.
Due Diligence Period
30 days for stabilized assets, 45–60 days for value-add, 60–90 days for development. Must be long enough to receive Phase I (3–4 weeks), ALTA survey (3–4 weeks), and PCA (2–3 weeks). Include seller document delivery obligations and property access rights.
Financing Contingency
Gives the buyer the right to terminate if debt cannot be secured on acceptable terms. Agency loans close in 45–60 days, CMBS in 60–90 days, bridge lenders in 30–45 days. Waiving the financing contingency is the strongest signal of certainty in a competitive bid.
Exclusivity (No-Shop)
Prevents the seller from entertaining competing offers for 30–60 days (acquisitions) or 60–90 days (ground leases). This is typically binding even when the rest of the LOI is not. Without exclusivity, your DD investment is unprotected.
Closing Conditions
Target closing 60–90 days from PSA execution. Include extension rights (15–30 days, with non-refundable extension fee). Specify closing cost allocation, title company, and escrow agent. Prorations of taxes, rents, and expenses as of closing date.
Assignment Rights
"Assignable to affiliates" is the standard compromise. Buyers need the ability to assign the PSA to a newly formed single-purpose entity for liability isolation and lender requirements. Sellers resist free assignability to prevent contract flipping.
Acquisition LOI vs. Ground Lease LOI
An acquisition LOI is structured around a one-time exchange: price, deposit, due diligence, financing, and closing. The buyer investigates the property as it exists today and either closes or walks. The entire timeline from LOI to closing is typically 60 to 120 days.
A ground lease LOI is fundamentally different. The tenant is committing to a 50 to 99 year relationship based on a development plan that does not yet exist. The key terms shift from purchase price to annual ground rent, escalation mechanics, development rights, construction deadlines, leasehold financing provisions, and reversion of improvements at lease expiration.
The most critical difference is financability. An acquisition can be financed with a straightforward mortgage on the fee interest. A ground lease development requires leasehold financing, which demands mortgagee protections, lender cure rights, subordination agreements, and a new lease provision. If these terms are not addressed in the LOI, the ground lease may be unfinanceable — and the tenant discovers this only after months of negotiation and legal fees.
Common LOI Negotiation Points
Going-Hard Mechanics
Sellers want earnest money to go hard as early as possible. Buyers want the deposit fully refundable through the entire DD period. The compromise is often a smaller initial deposit that goes hard at DD expiration, with a larger additional deposit that goes hard at financing contingency expiration.
DD Period Length
Sellers want a short DD period to minimize market downtime. Buyers want enough time to complete all third-party reports. The solution is ordering all reports on Day 1 and committing to a realistic but tight timeline. Offering a shorter DD period strengthens your bid.
Seller Representations
Buyers want broad representations that survive closing. Sellers want "as-is" language with no post-closing liability. The market standard is limited representations (clear title, no litigation, no environmental violations) that survive closing for 6–12 months with a liability cap.
Closing Cost Allocation
Varies by market. In most states, the seller pays transfer taxes and owner's title policy. The buyer pays for the lender's policy, survey, and DD reports. Prorations of taxes, rents, and expenses are split as of the closing date. Specify everything in the LOI to avoid PSA disputes.
LOI Mistakes That Cost Real Money
Vague earnest money terms. Stating a deposit amount without specifying when it goes hard, under what conditions it is refundable, and who holds it creates ambiguity that generates weeks of PSA negotiation. Be explicit about every aspect of the deposit mechanics.
No DD scope definition. An LOI that says “buyer shall have a 30-day due diligence period” without addressing seller document delivery, property access, environmental testing rights, and termination mechanics leaves critical questions for the PSA. Define the scope in the LOI.
Omitting exclusivity. Without a no-shop provision, you risk spending $25,000 to $75,000 on DD only to be outbid by another buyer. Always include a binding exclusivity period of at least 30 to 45 days.
Ignoring leasehold financing (ground leases). A ground lease without mortgagee protections, lender cure rights, and a new lease provision is unfinanceable. These terms must be established at the LOI stage — landlords have no incentive to concede them later.
No LOI expiration date. An LOI without an expiration date gives the seller unlimited time to shop your terms to other buyers. Include a 3 to 7 business day response deadline to create urgency and protect your negotiating position.