A letter of intent (LOI) is a short, mostly non-binding document — typically 2–5 pages — that sets out the key business terms of a commercial real estate deal before lawyers draft the contract: price, deposit, diligence period, closing timeline, and major contingencies. And yes, you need one: virtually every commercial transaction starts with an LOI, because negotiating business terms in a cheap, fast document before spending $25,000–$100,000+ on legal fees and diligence is how the industry avoids wasting months on deals that were never aligned. This guide covers what an LOI contains, which provisions actually bind you (exclusivity and confidentiality usually do), and how LOI strategy differs in off-market negotiations, where the letter often creates the deal rather than responding to one.
What an LOI is and where it sits in the deal
The letter of intent sits between the handshake and the contract. Once a buyer and seller converge on rough terms — through a marketed process or an off-market conversation — the buyer submits an LOI capturing the deal's skeleton in plain business language. Negotiation happens by redline: the seller marks up price or timeline, the buyer responds, and within days the parties either have a signed LOI or know they were never close. Only then do attorneys begin the purchase and sale agreement.
The sequencing exists because contracts are expensive and LOIs are nearly free. Drafting and negotiating a NYC commercial purchase agreement runs weeks and tens of thousands of dollars in legal fees; an LOI costs a broker's afternoon. The LOI is the cheap filter that ensures that money is only spent on aligned deals. It also sets the closing clock in motion — diligence windows, financing applications, and title work all key off the framework the LOI establishes. For how that full timeline runs, see how long it takes to buy commercial real estate in NYC.
What a commercial LOI contains
A well-drafted LOI covers every business term that could later kill the deal. The core provisions:
- Purchase price and how it may adjust — a fixed number, or a formula tied to diligence findings (price per square foot, assumed rent roll).
- Deposit (contract deposit) — typically 5–10% of price in NYC, whether it goes hard (non-refundable) at contract signing or after diligence, and who holds it in escrow.
- Due diligence period — commonly 30–60 days for NYC commercial assets, specifying access to the property, leases, financials, and violation records.
- Closing timeline — target contract-signing date and outside closing date, plus any extension rights and what they cost.
- Contingencies — financing, board or investment-committee approval, specific diligence outs (environmental, structural, zoning), and whether the deal is all-cash.
- Exclusivity — the seller agrees not to market or negotiate with others for a defined window, usually 30–60 days.
- Confidentiality — both sides agree to keep terms and the negotiation itself private.
- Broker identification — naming the brokers and who pays commissions, protecting everyone’s role in the deal.
The discipline is completeness: every material term left out of the LOI becomes a fight at contract stage, when your leverage is lower and your legal meter is running. Experienced buyers put anything they would walk over into the letter — assignment rights for a 1031 exchange, seller obligations on open violations, estoppel delivery requirements — because a seller who balks at a term in the LOI would have balked at contract anyway, after costing you a month.
Binding vs. non-binding: which parts actually commit you
The defining feature of an LOI is that its business terms are non-binding: either party can walk away before the contract is signed, and in New York, real estate contracts must be in writing under the statute of frauds — a non-binding LOI does not obligate anyone to sell or buy. Well-drafted letters say this explicitly, stating that no binding obligation to transact arises until a definitive purchase and sale agreement is executed. Sloppy drafting is the danger: letters that read like complete agreements and omit the disclaimer have generated litigation over whether the parties accidentally bound themselves, so the non-binding language is not boilerplate to skip.
Inside the non-binding wrapper, specific provisions are deliberately made binding — the carve-outs. Exclusivity binds: the seller genuinely cannot shop the deal during the window, which is what makes the buyer's diligence spending rational. Confidentiality binds: terms and the negotiation stay private, which sellers of occupied buildings care about intensely. Broker provisions and governing-law clauses typically bind as well; some LOIs add a binding good-faith-negotiation covenant. Read those carve-outs as carefully as a contract, because for those provisions, the LOI is the contract.
Why virtually every commercial deal starts with an LOI
Beyond filtering misaligned deals cheaply, the LOI performs three jobs nothing else does. It sequences commitment: buyers will not spend real diligence and legal money without exclusivity, sellers will not grant exclusivity without credible terms, and the LOI is the instrument that trades one for the other. It creates the deal record: the signed letter becomes the reference point that keeps contract drafting honest — when a term mysteriously drifts in the purchase agreement, the LOI is what you point to. And it tests counterparty behavior: how the other side negotiates a five-page letter predicts, reliably, how they will behave across sixty days of contract and diligence.
The LOI-to-contract conversion is where deals actually die — a signed LOI is genuine momentum but not a sale. Deals fall apart over diligence findings, financing, and re-trades between LOI and contract, which is why the strongest buyers move immediately: attorneys engaged the day the LOI signs, diligence vendors mobilized the same week. What survives into the binding document is covered in our companion piece on the commercial real estate purchase agreement in NYC.
LOI strategy in off-market negotiations
In a marketed process, the LOI responds to a deal that already exists. Off-market, the LOI often creates one: the owner has not decided to sell, and the letter is the instrument that converts a quiet conversation into a transaction. That changes the strategy entirely. The letter must be credible enough to take to partners and specific enough to be actionable — a vague indication of interest lets a non-seller stay a non-seller, while a signed-ready LOI at a defensible number forces a real decision. Proof of capacity matters more than in any auction: track record, financing relationships, and terms that show the buyer has actually underwritten the building.
Off-market LOI terms also skew differently. Certainty is the currency — cleaner contingencies, realistic timelines, and deposits that signal seriousness routinely beat higher headline numbers from shakier buyers, because the owner's alternative is not another bidder; it is not selling. This is the negotiation craft behind Skyline-brokered transactions like the $135M sale of 6 East 43rd Street and the $105M sale of 101 Greenwich Street — deals born as confidential conversations and converted, through precise terms, into closings. The broader craft is covered in how to negotiate commercial real estate deals in NYC.
Common LOI mistakes first-time buyers make
The recurring errors are predictable. Leaving material terms 'for the contract' — deposit structure, diligence scope, violation responsibility — and discovering at contract stage that the seller's understanding differed, after weeks and legal fees. Signing exclusivity without a completeness check, locking yourself to a seller while key terms remain open. Treating the letter as casual correspondence and skipping attorney review of the binding carve-outs — exclusivity and confidentiality are enforceable promises with real consequences. And over-lawyering the other direction: a ten-page LOI negotiated for a month is a contract with worse protections; if the letter is absorbing contract-level negotiation, move to contract.
The deeper mistake is submitting an LOI before the underwriting supports it. A letter you retreat from at contract — the re-trade — costs credibility that, in NYC's tight ownership community, follows you to the next deal. Price the building properly first; our guide to the questions to ask before an off-market offer is the pre-LOI checklist.
How Skyline approaches LOIs in off-market deals
Skyline Properties drafts and negotiates LOIs as the pivotal instrument of off-market dealmaking — the document that turns a confidential owner conversation into a transaction. For buyers, that means letters engineered for credibility: underwritten pricing, certainty-weighted terms, and proof of capacity that makes a non-selling owner engage. For sellers, it means pressure-testing inbound LOIs for the re-trade risk and hollow contingencies that waste exclusive months, and negotiating the exclusivity and confidentiality carve-outs that actually protect you.
In off-market investment sales, the LOI is where deals are won — the terms that give an owner confidence to transact quietly are a craft, not a form. If you are a buyer ready to pursue specific assets, submit an acquisition mandate and we will source and structure the approach. If you are an owner holding an unsolicited LOI and wondering whether the number is real, a confidential broker opinion of value will tell you — before you sign anything.
Frequently asked questions
- Is a letter of intent legally binding?
- The business terms — price, timeline, the obligation to buy or sell — are non-binding in a properly drafted LOI, and New York’s statute of frauds requires real estate contracts to be in writing, so neither party is committed to transact until the purchase agreement is signed. However, specific provisions are typically made expressly binding: exclusivity (the seller cannot shop the deal during the window), confidentiality, and often broker and governing-law clauses. Poorly drafted letters that omit clear non-binding language have spawned litigation, so have an attorney review even this "informal" document.
- Can a seller back out after signing an LOI?
- Yes — on the business terms, either party can walk before the contract is signed, and sometimes sellers do, particularly if a better offer materializes after the exclusivity window lapses. What a seller cannot do is violate the binding carve-outs: negotiating with another buyer during exclusivity breaches an enforceable obligation. Practically, buyers protect themselves with speed — moving from signed LOI to executed contract in two to three weeks — because momentum, not the letter, is what actually holds a deal together.
- How much deposit goes with a commercial LOI?
- None — the LOI itself involves no money changing hands. It specifies the deposit that will accompany the purchase contract: typically 5–10% of the price in NYC commercial deals, held in escrow, with the LOI stating whether it becomes non-refundable at contract signing or only after the diligence period expires. That structure is a genuine negotiating lever — a buyer offering a larger or faster-hardening deposit is signaling certainty, which in off-market negotiations often matters more to the owner than the last increment of price.
- How long does the LOI stage take in a commercial deal?
- Negotiating the LOI itself typically takes a few days to two weeks — it is a short document traded by redline. The letter then usually specifies two to three weeks to negotiate and sign the purchase agreement, followed by a 30–60 day diligence period and closing thereafter, putting most NYC commercial deals at three to six months from signed LOI to closing table. If LOI negotiation itself is dragging past a month, the parties are usually not actually aligned on the deal, and the calendar is telling you so.
- Should I send an LOI on a property that is not for sale?
- That is precisely how much of Manhattan's off-market volume begins — but the unsolicited letter has to be built for the job. It needs a credible, underwritten number (not a lowball that insults the owner into silence), proof of capacity to close, terms weighted toward certainty, and ideally a trusted intermediary who knows the owner and can make the approach without putting them on the defensive. A well-constructed approach to the right owner at the right moment converts non-sellers into sellers; a form letter blast does not.