What's a Letter of Intent (LOI) and Do I Need One?

What's a Letter of Intent (LOI) and Do I Need One?

A Letter of Intent, often called an LOI, is a written summary of the major business terms a buyer and seller are willing to consider before moving into a full contract. In commercial real estate, an LOI is usually used to confirm price, deposit, diligence period, financing assumptions, closing timeline, confidentiality, and key conditions before attorneys spend time drafting a purchase agreement.

An LOI is not a substitute for a contract. It is a bridge between an initial conversation and a formal agreement. In a serious NYC commercial transaction, it helps both sides decide whether they are close enough on the major terms to justify deeper diligence and legal work.

Why LOIs matter in commercial real estate

Commercial deals often involve significant diligence before closing: leases, rent rolls, expenses, taxes, zoning, violations, financing, title, environmental review, and building condition. Before a seller releases sensitive information and before a buyer spends meaningful time and money, both sides usually want to know whether the core economics are aligned.

In an off-market deal, the LOI can be even more important because the seller may not have run a public process. A clear LOI shows that the buyer is serious, organized, and capable of moving forward in a controlled way.

Common LOI terms

• Purchase price or pricing structure.

• Deposit amount and whether any portion becomes non-refundable.

• Due diligence period and documents the buyer expects to review.

• Closing timeline and any extension rights.

• Financing assumptions or whether the offer is all-cash.

• Confidentiality, exclusivity, access, and seller cooperation.

Is an LOI binding?

Many LOIs are mostly non-binding, but certain sections may be intended to be binding, such as confidentiality, exclusivity, access rules, expense responsibility, or governing law. The exact legal effect depends on the language used and the jurisdiction, which is why attorneys should review LOIs before signature.

From a business standpoint, even a non-binding LOI matters. It creates a written record of the deal framework, shows seriousness, and helps avoid misunderstandings before contract negotiation begins.

What makes an LOI strong?

A strong LOI is specific enough to be useful but not so overloaded that it becomes a substitute for the contract. It should clearly explain the buyer’s price, assumptions, diligence needs, timeline, and ability to perform. If the buyer is making an aggressive offer, the LOI should make the seller comfortable that the buyer understands the asset and can close.

A vague LOI can create confusion. An overly conditional LOI can make the seller feel the buyer is not committed. A clean, serious LOI can help move the transaction from conversation to contract.

How Skyline Properties uses LOIs in quiet deals

In a confidential off-market process, the LOI helps determine whether the buyer and seller are close enough to justify deeper disclosure. Skyline Properties uses the LOI stage to clarify price, structure, timing, diligence, and buyer credibility before unnecessary exposure is created.

For related guidance, read How Do I Know If a Commercial Deal Is Legitimate? and Manhattan’s Off-Market Investment Sales Authority.

FAQ

Do I need an LOI before contract?

In many commercial transactions, yes. An LOI helps confirm the major business terms before both sides spend time and money on a full contract.

Can an LOI be non-binding?

Yes, many LOIs are mostly non-binding, but certain provisions may be binding depending on the language. Attorneys should review the LOI before it is signed.

What should be in a commercial real estate LOI?

A commercial real estate LOI usually includes price, deposit, diligence period, closing timeline, financing assumptions, confidentiality, exclusivity, access, and key conditions.

Important note: This article is general information only and is not legal, tax, financing, zoning, engineering, brokerage-agency, or investment advice. Every transaction requires separate professional review.