A letter of intent is the short document two parties sign to set out the main terms of a commercial real estate deal before anyone pays a lawyer to draft the full contract. It is the handshake put in writing: price, structure, timing, and the big contingencies, agreed in principle so both sides know they are negotiating the same deal before spending real money on a signed purchase agreement or lease. Most of an LOI is deliberately non-binding — it commits you to keep talking, not to close. That single distinction is the one most people get wrong, and it is where the real risk lives. The LOI has also quietly become one of the most repeatable documents a small firm produces, which makes it one of the first places AI actually earns its keep.
What a letter of intent actually is
An LOI, sometimes called a term sheet or a memorandum of understanding, is the step between “we are interested” and “we have a contract.” A buyer sends it to a seller, or a tenant to a landlord, to say: here is the deal we think we can do, in enough detail that we can both decide whether to spend the next 30 to 60 days and several thousand dollars in legal fees drafting the definitive agreement.
It does three jobs at once. It confirms the parties are aligned on the economics before anyone invests in diligence. It frames the negotiation, so the lawyers draft from an agreed skeleton instead of a blank page. And it flushes out deal-breakers early — better to learn the seller cannot live with your due-diligence period in a one-page LOI than in a marked-up 40-page purchase agreement.
The LOI is short by design. A clean commercial LOI runs one to three pages. It is not meant to cover every contingency; that is the definitive agreement’s job. It gets the important terms on paper fast so the expensive drafting starts from a shared understanding.
Binding vs non-binding: the part that trips people up
Here is the distinction that decides whether an LOI helps you or hurts you. Most of a well-written LOI is non-binding. The price, the structure, the closing date — these are stated as the intended terms, subject to a definitive agreement. Either side can still walk away, renegotiate, or die in diligence, and nobody has breached anything.
But a handful of clauses are almost always binding, even though the deal itself is not:
- Confidentiality — both sides agree to keep the terms and any shared information private.
- Exclusivity or “no-shop” — the seller agrees not to market the property to other buyers for a set window while you do your work.
- Governing law and dispute terms — which state’s law applies if there is a fight over the binding parts.
- Expense responsibility — who pays for what if the deal falls apart.
The danger is language. An LOI that is sloppily worded can accidentally create a binding obligation to close, or a court can read intent into it that neither party meant. This is why the document needs a clear statement of which parts bind and which do not, and why it needs a real lawyer’s eyes before it goes out. The LOI looks casual. It is not. Treating it as a throwaway is how small firms end up in disputes over a “non-binding” letter.
What goes in a commercial real estate LOI
The exact terms shift between an acquisition LOI and a lease LOI, but the spine is consistent. A purchase LOI typically states:
- The parties and the property — who is buying, who is selling, and the exact asset.
- Purchase price and structure — the number, and whether it is all-cash, debt assumption, seller financing, or a joint venture.
- Earnest money / deposit — the amount and when it goes hard (becomes non-refundable).
- Due-diligence period — how many days the buyer gets to inspect, review leases, and confirm the numbers.
- Closing timeline and key contingencies — target date, plus financing, title, and environmental conditions.
- Binding provisions — confidentiality, exclusivity, governing law.
A lease LOI covers the parallel set: premises and square footage, base rent and escalations, term and renewals, tenant-improvement allowance, free rent, operating-expense treatment, and the guaranty. In both cases the LOI is the source of terms that later get abstracted into your deal binder and the executed lease or purchase agreement — those same terms are what a document-intelligence workflow later pulls back out, as covered in our primer on how AI reads a lease from a PDF into structured data.
Why LOIs quietly eat a small firm’s time
At an institutional shop, an analyst produces the LOI from a firm template and it comes back polished. At a four-to-twenty-person firm, the principal or the lead broker often is the analyst. You know the terms cold, but you still have to produce a clean, professional document — usually at night, against a deadline, by copying last month’s LOI and editing every field by hand.
The trap is that each LOI feels like a one-off, so it never gets systematized. In reality your firm produces the same document over and over, with the same structure and most of the same language, changing only the deal-specific terms. That is the textbook definition of work a machine should help with: repetitive, structured, high-volume relative to your headcount, and currently done by your most expensive person. It is the same operating gap — same document load, fewer people — that decides whether small shops keep pace with larger competitors, a theme we develop across the small-firm AI playbook.
How AI speeds up LOI drafting
The practical win is not that AI invents your deal terms. You still decide the price, the deposit, and the diligence window — that is the judgment you are paid for. AI collapses the production time between knowing the terms and having a clean, send-ready draft in your firm’s voice. The reliable pattern looks like this:
1. Give the model your own template. Paste in a past LOI your firm has used and liked, with the counterparty details stripped out. The model now knows your structure, your standard binding clauses, and your house style. This is the single biggest quality lever: an assistant drafting from your template produces something in your voice, not a generic internet LOI.
2. Feed it the deal facts. In plain language, give it the specifics: parties, property, price, deposit, 45-day due diligence, 30-day close, financing contingency, standard confidentiality and 30-day exclusivity. A well-built prompt turns that into a formatted first draft that mirrors your template.
3. Get a first draft in a minute, not an hour. What used to be a copy-paste-and-edit-every-field slog becomes a clean starting document you read, correct, and tighten. The model handles the mechanical assembly; you handle the deal.
4. Iterate in the same window. “Make the exclusivity 45 days.” “Add an environmental contingency.” “Shorten diligence to 30 days and adjust the closing date to match.” Changes that meant hunting through the document and re-checking cross-references now take a sentence.
A general business-tier assistant — ChatGPT, Claude, Gemini, or Microsoft Copilot — handles this well with a good prompt and your template, and it is where most small firms should start. Learning to write those prompts for exactly this kind of task — LOIs, lease summaries, market write-ups, client email — is the core of a focused team-training workshop, which typically runs in the low-thousands to low-five-figures. If your firm produces LOIs at real volume and wants a locked, on-brand template engine rather than a fresh prompt each time, that is a build decision with its own trade-offs, compared in off-the-shelf LOI tools versus a custom template engine.
What AI should not do with your LOI
The speed comes with a hard boundary, and drawing it clearly is what separates a firm that uses AI well from one that gets burned.
AI does not decide what binds. The single most consequential part of an LOI is the language that makes some clauses binding and the rest not. Getting that wrong can turn a “non-binding” letter into an enforceable obligation, or strip the protection you meant to keep. A model can draft that language competently, but it cannot be the final authority on it. Every LOI still needs a real estate attorney’s review before it goes to a counterparty. AI shortens the drafting; it does not replace counsel.
AI does not know your deal’s specific risk. It will happily produce a confident, standard-looking exclusivity clause without knowing that this particular seller has three other interested buyers, or that your lender needs 60 days, not 30. The judgment about what terms protect you in this deal is yours.
AI can be confidently wrong. A model will sometimes state a term crisply and get it subtly wrong — a mismatched date, a contingency that contradicts another clause, a number that does not tie to the deposit. Same reliability rule as every document task: let the machine draft, then verify the fields that carry money, dates, or legal weight. That extract-then-verify discipline runs through the whole document intelligence playbook for a small firm.
The rule of thumb: AI owns the first draft and the mechanical edits. You own the terms. Your attorney owns the binding language.
Keeping deal terms confidential
An LOI is confidential deal material. It names the parties, states the price, and often exists under an NDA before it is even signed. For a firm with no IT department to write policy, where you draft the document matters as much as how fast it drafts.
Use a business-tier or enterprise account from a major provider, whose terms state that your inputs are not used to train the model by default — confirm your plan’s current terms, because they change. Never paste live deal terms, party names, or price into a free consumer account. One written rule is enough governance for a firm this size: which tool is cleared for confidential deal documents, plus the habit of stripping counterparty details you do not need in the prompt. The most common mistake at a small shop is someone dropping a live LOI into the wrong tool to save five minutes. The workflow is only as safe as the account you run it in.
How to start this week
You do not need software, a budget line, or an IT project to get the first win. You need three things: one past LOI your firm likes, a business-tier account cleared for confidential material, and one live deal whose terms you already know. Strip the old LOI of counterparty details, give the model your terms, and compare the draft to the two hours you would have spent. If your LOIs are similar deal to deal — and for most firms they are — you will feel the time back on the first attempt. Get comfortable with that loop before buying a dedicated tool; the manual version tells you exactly what you would be paying to systematize.
FAQ
What is a letter of intent in commercial real estate?
It is a short document, usually one to three pages, that lays out the main terms of a deal — price, structure, timing, and key contingencies — before the parties spend money drafting the definitive purchase agreement or lease. It confirms both sides are aligned, frames the negotiation for the lawyers, and surfaces deal-breakers early. Most of it is non-binding; a few clauses are not.
Is a letter of intent legally binding?
Mostly no, but partly yes. The core deal terms — price, closing date, structure — are typically non-binding and subject to a definitive agreement, so either side can still walk away. But specific clauses, usually confidentiality, exclusivity or no-shop, governing law, and expense responsibility, are almost always binding. Sloppy wording can make more of the LOI binding than intended, which is why it needs a clear binding/non-binding statement and a lawyer’s review.
What is the difference between an LOI and a purchase agreement?
The LOI is the short, mostly non-binding outline of the deal; the purchase agreement (or lease) is the long, fully binding contract. The LOI gets the important terms agreed in principle so the definitive agreement can be drafted from a shared skeleton. Think of the LOI as the agreed outline and the definitive agreement as the enforceable detail.
What should a commercial real estate LOI include?
For an acquisition: the parties and property, purchase price and structure, earnest-money deposit, due-diligence period, closing timeline, key contingencies (financing, title, environmental), and the binding provisions. For a lease: premises and square footage, base rent and escalations, term and renewals, tenant-improvement allowance, free rent, operating expenses, and the guaranty. Keep it short — the contract carries the detail.
Can AI write a letter of intent for me?
AI can produce a strong first draft fast, especially if you give it a past LOI as a template and the specific deal terms. It handles the mechanical assembly and formatting in your firm’s voice, turning a two-hour redraft into a short first-draft-and-verify loop. It should not be the final word on the binding language, and it does not replace an attorney’s review.
Which AI tool is best for drafting LOIs at a small firm?
For most small firms, a general business-tier assistant such as ChatGPT, Claude, Gemini, or Microsoft Copilot handles LOI drafting well with a good prompt and your own template. Purpose-built tools and custom template engines add value at high volume, but they are a later step. Start with a tool you may already pay for and learn the prompt.
Is it safe to draft an LOI with AI given the confidential terms?
With safeguards, yes. Use a business-tier or enterprise account whose terms state your inputs are not used to train the model by default, and verify your plan’s current terms. Never use a free consumer account for live deal terms, and strip counterparty details you do not need in the prompt. Set one written rule about which tool is cleared for confidential deal documents.
How long should a commercial LOI be?
One to three pages is standard. The LOI is meant to state the important terms quickly, not cover every contingency — that is the definitive agreement’s job. If your LOI is creeping toward the length of a contract, you are drafting in the wrong document, and you are also slowing the deal down.
Key takeaways
- A letter of intent is the short document that sets a CRE deal’s main terms — price, structure, timing, contingencies — before anyone drafts the full contract.
- Most of an LOI is non-binding, but confidentiality, exclusivity, governing law, and expense clauses usually bind. The binding/non-binding split must be explicit, because sloppy wording can create obligations you did not intend.
- The LOI has become a repeatable production task for lean firms — the same structure, deal after deal, done by your most expensive person at night.
- AI collapses the drafting time: give it your own past LOI as a template and the deal facts, and it produces a clean first draft in minutes. You still own the terms; your attorney owns the binding language.
- Confidentiality is first-order: business-tier accounts, train-by-default terms, and one written rule about which tool handles live deal documents.
Not sure which of your deal documents are ready to hand to AI and which still need a person and a lawyer? That depends on how your LOIs, leases, and diligence files actually flow, which is exactly what a short working session sorts out. Book your free AI-readiness assessment →
Arthur Wandzel
