What’s the Difference Between a Letter of Intent (LOI) and a Lease?

When it comes to leasing commercial real estate, two documents play a major role in bringing a deal to life: the Letter of Intent (LOI) and the Lease Agreement.

While they’re often mentioned in the same conversation, they serve very different purposes in the transaction process. Understanding the distinction between the two can help tenants, landlords, and investors navigate negotiations more efficiently — and with greater confidence.

1. The Letter of Intent (LOI): Outlining the Deal

The Letter of Intent, or LOI, is a non-binding document that summarizes the main business terms both parties are considering.

Think of it as a roadmap for negotiations. It’s not the final contract, but it lays the groundwork for one — confirming that the tenant and landlord are aligned on key deal points before attorneys begin drafting the formal lease.

An LOI typically includes:

• Proposed rental rate and lease term

• Tenant improvement (TI) allowance or build-out details

• Free rent or other concessions

• Security deposit amount

• Renewal or expansion options

• Expected timelines and next steps

Because it’s non-binding, the LOI allows flexibility for both sides to refine terms and address open questions before committing to a legally enforceable agreement.

2. The Lease Agreement: Making It Official

Once both parties agree on the general business terms in the LOI, the process moves to the Lease Agreement — the legally binding contract that governs the relationship between tenant and landlord throughout the lease term.

The lease captures all agreed-upon deal terms and expands them into detailed legal, financial, and operational language. It’s drafted by the landlord’s attorney and then reviewed by both parties (and their counsel) before execution.

A Lease Agreement typically includes:

• All terms from the LOI, plus expanded legal detail

• Rent escalations and operating expense pass-throughs

• Maintenance and repair responsibilities

• Insurance and indemnity requirements

• Sublease or assignment rights

• Default, remedies, and termination provisions

  
  

Unlike the LOI, the Lease is fully binding and enforceable once signed, outlining each party’s obligations and protections in detail.

3. Why Both Steps Matter

The LOI and Lease work hand-in-hand to ensure a smooth, transparent leasing process.

• The LOI aligns expectations early and minimizes surprises later.

• The Lease finalizes the terms and provides legal protection for both sides.

For tenants, the LOI is a valuable opportunity to negotiate key financial and operational items before legal costs accumulate. For landlords, it serves as a checkpoint to confirm the deal’s viability and tenant intent.

Final Thoughts

Understanding the difference between an LOI and a Lease can help all parties — tenants, landlords, and investors — move through the leasing process more strategically.

With an experienced broker guiding the discussion, you’ll know when to negotiate, when to review, and when to sign — ensuring a smooth path from proposal to possession.