LOI vs. lease: what is binding, and why the LOI matters

Updated October 27, 2026 · General information, not legal advice.

Before a landlord drafts a lease, the two sides usually agree on the main business terms in a letter of intent, often called an LOI or a proposal. Many small tenants treat the LOI as a formality. In practice, it sets the frame for the whole deal. This guide explains the difference between an LOI and a lease and what is worth getting into the LOI.

How to use this guide: read it with your own lease or proposal open beside you. Lease labels and "standard" terms vary from property to property and from landlord to landlord, so treat everything here as a list of things to look for and questions to ask, not as a description of what your document says. When a section of your lease is unclear, ask the landlord or its representative to explain it in writing, and keep notes of what was agreed.

What an LOI is

A letter of intent is a short document, often two to five pages, that summarizes the key business terms of a proposed lease: the space, rent, term, concessions, and major conditions. It is used to confirm both sides are aligned before anyone spends time and money drafting and reviewing a full lease.

A lease, by contrast, is the full contract. It may run 30 to 80 pages or more and covers everything from rent to repairs, insurance, defaults, assignment, and what happens at the end of the term.

Is an LOI binding?

Many LOIs state that they are non-binding, meaning neither side is obligated to sign a lease until a final lease is executed. But that is not automatic, and the wording matters. Some LOIs include specific provisions that are meant to be binding even if the rest is not, such as:

Confidentiality. Keeping the terms private.
Exclusivity or "no-shop." The landlord agrees not to negotiate with other tenants for the space for a period.
Deposits. Terms for any good-faith deposit.

If an LOI does not clearly say which parts are binding and which are not, its effect can be uncertain. Read the language near the signature block closely, and get professional input if you are unsure what you are committing to.

Why the LOI matters even if it is non-binding

Once an LOI is signed, the lease drafter generally works from it. Points in the LOI tend to make it into the lease. Points left out of the LOI tend to default to the landlord's standard form. Reopening a business term after the LOI can be harder, because the landlord may see it as retrading the deal. That is why the LOI is often the best moment to ask for what matters to you.

What small tenants should consider putting in the LOI

Premises. Suite number and square footage, and how square footage is measured.
Term and commencement. Length, start date, and when rent starts. Rent often starts later than the lease, after a build-out period.
Base rent and increases. Starting rent and annual escalations.
Operating expenses. NNN or gross structure, the current estimate, and any caps. See NNN leases explained.

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Free rent and improvement allowance. How much, and when and how it is paid.
Landlord's work. What the landlord delivers, such as working HVAC, restrooms, or electrical capacity, and the condition of the space at delivery.
Use and exclusive. Your permitted use, and any exclusive right protecting you from a competing tenant. See our exclusive use clause guide.
Renewal options. Number, length, and how rent is set.
Personal guarantee. Whether one is required, and any cap or burn-off. See personal guarantees.
Assignment and subletting. Especially the right to assign if you sell the business.
Contingencies. Permits, financing, or licenses you need before you are committed.
Signage. Where and what size, subject to the property's rules and local codes.

Comparing the lease against the LOI

When the draft lease arrives, compare it point by point against the signed LOI. Check that every agreed term is in the lease and stated the same way. Then read the rest of the lease for terms the LOI did not cover: default and remedies, repair obligations, insurance and indemnity, relocation rights, and surrender conditions. Our first commercial lease checklist covers these.

Common LOI mistakes

Signing the landlord's first proposal without a counter
Leaving out the guarantee, so the landlord's full form applies
Not specifying the condition of the space at delivery
Missing contingencies for permits or licenses
Treating "non-binding" as meaning nothing in the document matters

Frequently asked questions

Can I back out after signing an LOI?

If the LOI is truly non-binding, generally either side can walk away before the lease is signed. Binding provisions, like exclusivity or confidentiality, may still apply. Read the LOI's own language.

Should I counter the landlord's LOI?

Countering is normal. The first proposal is a starting point.

Who drafts the lease after the LOI?

Usually the landlord or its representative, starting from the landlord's standard form plus the LOI terms.