Letters of Intent in Real Estate: Binding, Non-Binding, and the Trap in Between

A letter of intent in a real estate deal is a short pre-contract document that outlines the major business terms, price, timing, diligence period, and key conditions, before the parties spend money drafting and negotiating the full agreement. Most LOIs say they are non-binding. Many are less non-binding than their signers believe, because courts in various states have enforced LOI provisions, and sometimes entire LOIs, based on the language used and the way the parties behaved afterward. The document deserves twenty careful minutes, and it usually gets two.

I have negotiated LOIs on every side: buyers, sellers, landlords, tenants, and developers working municipal deals. Used well, the LOI is the cheapest negotiating tool in real estate, resolving the deal-shaping terms while everyone’s legal spend is still near zero. Used carelessly, it either gives away leverage the contract negotiation never recovers or creates obligations nobody meant to accept. Here is how to stay on the right side of both mistakes.

What should an LOI actually contain?

The business skeleton, and little else: the parties and the property, the price and deposit, the length of the diligence period, the closing timeline, financing expectations, who pays which transaction costs, and any terms that would kill the deal if unresolved, such as a required zoning approval, a lease-back, or included personal property. For leases, the skeleton is rent, term, tenant improvement allowance, renewal options, and delivery condition. The test for inclusion is simple: is this a term the deal rises or falls on? If yes, it belongs in the LOI, because terms conceded at contract stage cost more to recover than terms anchored early.

What should not go in is equally important. Detailed representations, remedies, and legal mechanics belong in the contract, where they will be drafted with care. An LOI that tries to be a mini-contract gets the worst of both worlds: enough detail to create enforceability arguments, without enough precision to be a document you would want enforced. Short, clear, and structural is the drafting standard.

One more inclusion earns its place in competitive situations: the timeline for contract drafting itself, naming who prepares the first draft and the target dates for exchange and execution. Whoever drafts first frames every issue, and a schedule keeps a signed LOI from becoming a parking spot where deals lose their momentum and their pricing assumptions.

Which parts of a non-binding LOI bind anyway?

By design, several provisions are usually intended to bind even in an otherwise non-binding LOI, and they should be labeled as such: exclusivity, sometimes called a no-shop, in which the seller agrees not to market the property or negotiate with others for a defined period; confidentiality over the terms and the diligence materials; access provisions governing early property visits; and allocation of costs like who pays for the survey if the deal dies. These are the reasons a buyer wants an LOI at all, because they protect the money about to be spent on diligence and drafting.

The trap is the binding effect nobody intended. Courts have found enforceable obligations where an LOI omitted clear non-binding language, where it read like a complete agreement with nothing left to negotiate, or where a party’s later conduct treated the deal as done. Some jurisdictions imply a duty to negotiate in good faith from LOI language, meaning a party who walks for a reason outside the LOI’s contemplation can face a claim. The fix is drafting hygiene: an express statement that no binding obligation to buy, sell, or lease exists until a definitive agreement is signed by both parties, a clear list of which specific provisions are binding, and behavior after signing that matches the words.

How do you use an LOI for negotiating leverage?

Anchor the terms you most care about while the temperature is low. Sellers reflexively negotiate price and often accept diligence and timing terms in the LOI that their counsel would have fought in the contract, and buyers do the reverse. Whichever side you are on, the LOI stage is when the other party’s investment in the deal is smallest and their flexibility greatest, so the structural terms, diligence length, extension rights, deposit mechanics, and any unusual conditions, are cheapest to win there.

Exclusivity deserves particular strategy. For a buyer, a 45 to 60 day no-shop is the shield over your diligence spend, and it should run from LOI signature, not contract signature, because the contract negotiation itself takes weeks you do not want the seller shopping through. For a seller, exclusivity is a gift with a price: grant it in exchange for a serious deposit timeline, evidence of financing capability, and a defined schedule for contract negotiation, so a buyer cannot park your property cheaply. My board of REALTORS years taught me to watch the broker dynamics here too, because commission expectations and protection periods are quietly shaping both sides’ patience.

When should the LOI stage be skipped?

Sometimes. In small deals with standard form contracts, in hot markets where speed is the offer, or between parties who transact together regularly, going straight to contract can be the right call, and an LOI would just add a week. The LOI earns its place when the deal has structural complexity worth resolving cheaply, when diligence will be expensive enough to need exclusivity protection, or when the parties need a document to take to lenders, partners, or a municipality before committing to full drafting.

Whatever the path, the discipline is the same: know which words bind, make the document say exactly that, and behave accordingly afterward. The most expensive LOI problems I have untangled did not come from bad intentions. They came from good intentions, casually documented. Twenty careful minutes at the start is the entire cost of avoiding them.

Frequently asked questions

Is a signed LOI enforceable if it says non-binding?

Its expressly binding provisions, like exclusivity and confidentiality, are. The rest generally is not, but outcomes have turned on sloppy language and post-signing conduct, and some states imply good-faith negotiation duties. Clear drafting plus consistent behavior is the protection.

Should I involve an attorney at the LOI stage?

Yes, and it is the cheapest attorney involvement in the whole deal. A short review catches binding-language problems and anchors the structural terms that are expensive to recover later. Most LOI reviews are measured in a fraction of the cost of renegotiating one bad term.

How long should LOI exclusivity last?

Long enough to cover contract negotiation plus the core diligence spend, commonly 45 to 60 days in commercial deals, sometimes with extensions tied to milestones like contract execution. Open-ended exclusivity is a seller mistake; none at all is a buyer mistake.

Talk with Lori

The LOI is where deals take their shape, and shape is strategy. I negotiate them across my real estate, finance, and corporate practice at AEGIS Law, licensed in Missouri, Illinois, Florida, and California. Reach me at ldacosse@aegislaw.com.

By Lori DaCosse, Real Estate, Finance & Corporate Attorney, AEGIS Law

This article is for general information only and is not legal advice. Reading it does not create an attorney-client relationship with AEGIS Law.