Is a Letter of Intent Legally Binding?
Usually, no. Most commercial real estate LOIs say clearly that they are non-binding. Either side can walk away until the lease or purchase agreement is signed. But an LOI can become binding if it is written carelessly, and some parts are often meant to be binding.
How an LOI can become binding by accident
Courts look at the words and at how the parties acted. Problems come up when an LOI:
- Has no clear non-binding statement
- Uses words like "agrees to" or "shall" for the deal terms
- Covers every term, so nothing is left to negotiate
- Is followed by actions like taking possession or paying rent before a lease exists
Rules differ by state. If you are unsure, ask a real estate attorney in that state.
Parts that are often binding
- Exclusivity or no-shop. The seller or landlord agrees not to negotiate with others for a set number of days.
- Confidentiality. Common in business acquisitions.
- Access for inspections and who pays for them.
- Costs. Each side pays its own lawyers.
If you want any of these to bind, say so in that paragraph, and say that the rest of the letter does not bind.
Sample non-binding language
"This letter is a statement of intent only. Except where a paragraph says it is binding, it does not create a binding agreement. Neither party is bound until a definitive agreement is fully signed and delivered by both parties. Either party may end negotiations at any time for any reason."
Every LOI built with this site includes this clause.
More in LOI Basics
Other guides
- NNN vs. Gross vs. Modified Gross Leases
- Vanilla Box vs. White Box vs. Cold Dark Shell
- TI Allowance and Free Rent: How to Negotiate Them
- Co-Tenancy Clauses Explained
- Exclusive Use Clauses in Retail Leases
This guide is general information, not legal advice. Deal terms vary by market and by deal.