Real Estate Letters of Intent - Be Careful You Don't Get More Than You Bargained For

Sep 15, 2026

Letters of intent (LOIs) are examined as a common starting point for real estate transactions, explaining how parties express basic intent on important terms while aiming to avoid binding, enforceable commitments or liability exposure. The guidance covers when an LOI is helpful, when it can become counterproductive, and key risks such as unintended legal significance and bargaining leverage effects. It also details non-binding drafting language and recommended deal terms and practical drafting steps to keep the document effective yet limited in legal scope.

LanguageEnglish

CategoryLetters

FormatPDF

Pages3

Reading Time1 min

AccessFree to download

Letters of Intent

When to Use an LOI

Making It Work

LETTERS OF INTENT: BE CAREFUL YOU DON'T GET MORE THAN YOU BARGAINED FOR By Greg Erwin Getting a real estate deal off the ground requires a lot of tire kicking and due diligence. How best to get started? One of the most common methods is the so-called letter of intent. However--as with all documents in a deal--you need to know a few things about letters of intent before jumping in and signing one. A letter of intent is a written document signed by the parties to a proposed transaction in which they express their basic intent on the important terms of the tentative deal. At the same time, the proposed transaction is not generally intended to be binding or enforceable or to expose the signers to any potential liability. An LOI can be referred to by any number of other names: memorandum of understanding, letter of understanding, term sheet, transaction outline, agreement in principle, etc. However, since an LOI is normally not intended to establish a binding agreement among the parties to consummate any transaction, it is preferable not to title the document with the term "agreement. " WHEN TO USE AN LOI An LOI serves to focus discussion on the material terms of the proposed transaction. It provides a comfort level for the parties in putting forth additional time, effort, and expense, knowing that they have initially established a basis upon which the proposed transaction can be consummated. An LOI also provides some measure of "ethical glue" --issues agreed to should not be renegotiated. But there are times when using an LOI doesn't make sense. For example, an LOI may become so detailed and over negotiated that it is as expensive and time-consuming as a definitive agreement; but it lacks enforceability. You may get bogged down in negotiating the LOI and lose the window of opportunity for the deal. Simple transactions do not need an LOI--it's easier to go straight into a definitive agreement. Some other downsides to using an LOI include the following: • If the LOI is negotiated only by businesspeople before lawyers are involved, the legal significance of agreed-on points may not be fully realized. • LOIs generally favor the tenant/buyer. A judge or jury decides questions as to the binding nature of the LOI. But just the threat of litigation as to whether or not a deal is "binding"may adversely influence the landlord's or seller's bargaining position. The LOI should not establish any agreement as to the terms of the proposed transaction, to consummate any transaction or to enter into any definitive agreement. The terms of the proposed transaction as detailed in the LOI should be expressly stated to be non-binding. Moreover, the LOI should expressly state that the parties do not intend to be legally bound to consummate any transaction unless and until they execute and deliver a"definitive written agreement. " Be especially careful not to use any words ("agree," "offer," "accept," etc.) in the non-binding provisions ofthe LOI that state or imply that an offer has been extended or that an acceptance has been solicited or otherwise that an agreement has been (or may be) formed. The LOI should set for the material proposed business terms of the deal. These include the following: • Names of buyer and seller • Property to be purchased • Price and terms • Duration of inspection period • Closing date • Who pays for title policy, survey, commissions, etc. • Special "deal points," such as restrictive covenants, reserved easements and the like. MAKING IT WORK Although generally thought to be non-binding, the LOI may contain binding agreements as to certain matters on which the parties need agreement before they proceed. Any of these matters could be (and sometimes are) addressed in a separate written agreement apart from the LOI. Normally, these agreed-on matters will not directly pertain to the terms of the proposed transaction, but to ancillary matters. These might include access for du

FAQs

What is a letter of intent (LOI) in a real estate deal?

An LOI is a signed written document where the parties express basic intent on important terms of a proposed transaction. It is generally intended to be non-binding and not to create enforceable obligations or expose signers to potential liability.

When does using an LOI not make sense?

An LOI can become too detailed and over-negotiated, creating expense and delay similar to a definitive agreement while still lacking enforceability. Simple transactions may be better handled by going directly to a definitive agreement.

How can the LOI be drafted to avoid unintended binding effect?

The LOI should expressly state that terms are non-binding, that the parties do not intend legal commitment until a definitive written agreement is executed, and should avoid wording that suggests an offer or acceptance has been formed. Binding items, if any, should be separated clearly or handled in a separate document.

Sep 15, 2026

Uploaded by Sophia Brooks