Letter of intent template

A commercial real estate LOI, clause by clause, with what each one is actually for. Free, no signup.

This is a starting point, not legal advice. An LOI can create binding obligations even when it says it does not, and the law varies by state. Have counsel review anything you send.

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The clauses, and what each is for

Marked clauses are the ones that cause real damage when they are left out.

Parties and property

The buying entity is often formed later. Say who will take title and that assignment to an affiliate is permitted, or you will renegotiate it at closing.

Buyer: [BUYER ENTITY], or an affiliate or assignee thereof.
Seller: [SELLER ENTITY].
Property: [ADDRESS], [CITY, STATE ZIP], being approximately [SF] square feet on approximately [ACRES] acres, together with all improvements and appurtenances (the "Property").

Purchase price

State the number and how it may move. A price "subject to adjustment" with no stated mechanism is an argument waiting to happen.

Purchase Price: $[AMOUNT], payable in cash at closing, subject only to the prorations and adjustments customary in [STATE] and any adjustment expressly provided herein.

Earnest moneydon’t omit

Say when it is deposited, who holds it, and — critically — when it becomes non-refundable. "Hard at signing" and "hard at the end of due diligence" are very different deals.

Deposit: $[AMOUNT] delivered to [TITLE COMPANY] within [3] business days of full execution of the definitive agreement, refundable until expiration of the Inspection Period, thereafter non-refundable except upon Seller default or failure of a stated condition. The Deposit is applicable to the Purchase Price at closing.

Inspection perioddon’t omit

The clock should start on delivery of the diligence materials, not on signature. Starting it at signature means every day the seller is slow is a day out of your period.

Inspection Period: [45] days commencing on the later of (i) full execution of the definitive agreement and (ii) Seller's delivery of the Due Diligence Materials described below. Buyer may terminate for any reason or no reason prior to expiration, whereupon the Deposit is returned in full.

Due diligence materials

List them. "Customary due diligence materials" is not a list, and the argument about what was customary happens exactly when you can least afford it.

Within [5] business days of execution, Seller shall deliver: current rent roll certified by Seller; leases and all amendments, guaranties and side letters; operating statements for the trailing 36 months and year to date; the current year budget; tax bills for 3 years; service contracts; existing survey and title policy; environmental reports; certificates of occupancy and open permits; insurance loss runs for 3 years; and any notices of violation.

Closing

Tie it to the end of the inspection period rather than a fixed date, so a slow start does not compress the end.

Closing: on or before [30] days following expiration of the Inspection Period, at the offices of the title company, or earlier by mutual agreement.

Financing

If the offer is not contingent on financing, say so — it is often the reason a seller takes a lower number. If it is, state the terms so the contingency is testable.

This offer is [not contingent upon financing / contingent upon Buyer obtaining financing of not less than $[AMOUNT] at a rate not exceeding [RATE]% with a term of not less than [YEARS] years, within [30] days of execution].

Exclusivitydon’t omit

The one clause a buyer should insist on and a seller should scrutinise. Without it you fund third-party reports on a deal still being shopped.

From execution hereof until the earlier of (i) [45] days and (ii) termination, Seller shall not solicit, entertain or accept any offer from, or continue discussions with, any other party with respect to a sale of the Property.

Brokerage

Name the brokers and who pays. Unnamed commissions are the most common source of post-LOI friction.

Seller shall pay a commission to [BROKER] pursuant to separate agreement. Each party represents to the other that it has dealt with no other broker in connection with this transaction.

Confidentiality

Usually one of the few clauses intended to bind, which is exactly why it must be carved out of the non-binding language below.

The existence and terms of this letter, and all information furnished by Seller, shall be kept confidential and used solely to evaluate the transaction, save for disclosure to Buyer's lenders, investors, counsel and consultants, or as required by law.

Non-binding effectdon’t omit

The clause that makes this a letter of intent rather than a contract. Omit it and you may have signed something enforceable. It must carve out the clauses you do intend to bind.

Except for the paragraphs captioned Exclusivity, Confidentiality and Brokerage, which are intended to be binding, this letter is an expression of intent only, does not constitute a binding agreement, and no party shall have any obligation to the other unless and until a definitive purchase and sale agreement is executed and delivered by both parties.

Expiration of offer

An offer with no expiry can be shopped indefinitely as a stalking horse.

This letter shall expire if not accepted by Seller in writing on or before [5:00 p.m. local time on DATE].

Common questions

Is a letter of intent binding?: Usually not, but only if it says so clearly. An LOI without explicit non-binding language can be found enforceable depending on the wording and the state, and courts look at what the document does rather than what it is called. The non-binding clause should also carve out the clauses you do intend to bind, typically exclusivity, confidentiality and brokerage.
What should a commercial real estate LOI include?: Parties and property, purchase price, deposit and when it goes hard, inspection period, the due diligence materials the seller will deliver, closing timing, financing contingency or its absence, exclusivity, brokerage, confidentiality, non-binding effect and an expiration date for the offer.
When should the inspection period start?: On delivery of the due diligence materials, not on signature. If the clock starts at signature, every day the seller takes to produce leases and financials is a day out of your inspection period, and you will discover that at the end rather than the beginning.
Why does exclusivity matter in an LOI?: Because without it you fund third-party reports, legal work and lender diligence on a deal that is still being shopped. It is the clause a buyer should insist on and the one a seller should read most carefully, since it takes the property off the market for the stated period.
When does earnest money become non-refundable?: Whenever the LOI says, which is why it needs saying. The common structure is refundable through the inspection period and hard afterwards, but deposits that go hard at signing exist and are a materially different deal. Never leave this to be settled in the purchase agreement.

The rest of the analyst’s job

The arithmetic is the easy part. Everre does the offering memoranda, the broker opinions of value, the lease abstracts and the rent rolls — the work that usually costs you an analyst. The CRM is free and there are no per-seat fees.

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