Reviewed by Robert Mendieta Jr., CCIM — Associate Broker · Commercial Division · DRE #01422904
Last updated: October 4, 2026
A commercial lease letter of intent is the short document in which tenant and landlord outline the basic terms of a lease before anyone drafts the lease itself. It comes after the tour and before formal negotiation. Because the lease is often drafted from it, what you accept here tends to shape the contract. Here is how binding it is and what to negotiate before you sign a letter of intent to lease.
The direct answerWhat Is a Commercial Lease Letter of Intent?
A commercial lease letter of intent (LOI) is a document landlords and tenants use to set out the basic terms of a proposed lease — space size, term length and rental rate — before the lease is drafted. It is usually not a binding contract, and it often becomes the guide for drafting the lease.
LOIs are typically prepared by the tenant, the tenant’s real estate broker or the tenant’s attorney, though some landlords prepare them too. The tenant tests whether the space meets its basic needs; the landlord learns the tenant is serious. The wider process is covered in our guide on how to lease commercial property.
Key Takeaways
- An LOI outlines the space, term and rental rate, and the lease is often drafted from it.
- It is usually not binding, but a court may find one enforceable — so make it a non-binding letter of intent in writing, not by assumption.
- Confidentiality and exclusivity are examples of provisions parties may want binding on signing.
- Options such as early termination, a right of first refusal, or expansion must be expressly set forth in the LOI.
- In the Inland Empire industrial market, CoStar reports that “leverage remains with occupiers” as of Q3 2026.
Is a Letter of Intent for a Commercial Lease Binding?
Usually not — but it can be, depending on the wording. Nolo’s guide to commercial lease letters of intent says an LOI is usually not a binding contract, while a Troutman Pepper Locke analysis cautions that a court may still find an LOI enforceable.
So a non-binding letter of intent should spell out its status rather than rely on the heading:
- Say it plainly. State that the letter is non-binding and that no binding contract exists until both landlord and tenant execute and deliver a lease.
- Limit its scope. Note that it does not cover every item in the final agreement.
- Strip the contradictions. Remove any good-faith negotiation covenant a form LOI may carry, and never call the letter a final agreement.
Troutman Pepper Locke gives two examples of provisions parties may want binding on signing: confidentiality, which keeps the negotiation private, and exclusivity, which stops the landlord from marketing the space while you negotiate. Nolo frames the no-shop as a promise that neither side will strike a deal elsewhere until the lease is signed or one side walks away.
Why wording matters: mutual assent is proven objectively, so courts look to the parties’ outward expressions rather than private intent. Even informal agreements may be binding if the elements of contract formation are present. In California, consent is one of those elements, and it must be free, mutual and communicated. The general doctrine of promissory estoppel can also allow recovery for reasonable, detrimental reliance on a promise the promisor could foresee, even without a formal contract, when enforcement is necessary to avoid injustice.
Not legal advice. Apex Real Estate Services is not a law, tax or accounting firm. This is general information, not legal advice — have a California real estate attorney review any LOI and lease before you sign, and ask your CPA about tax questions.
LOI vs. Lease: What’s the Difference?
The LOI outlines the business deal; the lease is the binding contract. Under California Civil Code §1624, a lease longer than one year must be in writing and signed — one reason every letter of intent to lease commercial property is followed by a full written lease.
| Question | Letter of intent (LOI) | Lease |
|---|---|---|
| Purpose | Outlines basic terms: space size, term length, rental rate | The contract that governs the tenancy |
| Binding? | Usually not, if drafted that way; confidentiality and exclusivity may be made binding | Yes; in California a lease over one year must be in writing and signed |
| Level of detail | Business terms; not meant to cover every item | The full agreement, worked out in formal negotiation |
| Who drafts it | Usually the tenant, its broker or its attorney; some landlords | Drawn up with the LOI as a guide |
| When it is signed | After the tour and informal talks, before formal negotiation | At the end of formal negotiation |
Section 1624 says what must be in writing; whether a given signed LOI could count as the required memorandum is a question for your attorney.
The checklistWhat Should a Letter of Intent to Lease Commercial Property Include?
At minimum: the property address, the names of tenant and landlord, the size of the space and suite number, the lease term and move-in date, the rental rate and what it includes, how you will use the space, and a statement that the letter is not binding.
If you searched for a commercial lease letter of intent template, use a checklist instead — a form can’t know your dealbreakers.
| LOI term | What to pin down |
|---|---|
| Parties & premises | Property address, tenant and landlord names, square footage, suite number |
| Base rent | Base rent amount and yearly escalations, if any |
| Lease structure | Triple net, gross or modified gross — who pays taxes, insurance, common area and operating expenses |
| Security deposit | Amount, form (cash or letter of credit), any reduction during the term |
| Concessions | Free rent, rent abatement, tenant improvement allowance, other landlord concessions |
| Improvements | Which party completes the work, and any allowance provided |
| Dates | Delivery date, commencement date, rent commencement date, length of term |
| Options | Extension terms, exercise notice period, extension rent; expansion, contraction, first refusal, early termination |
| Use | Permitted use stated verbatim; for multitenant retail, the exclusive and prohibited uses in effect |
| Operations | Parking count, type and cost; signage; security; access hours and air conditioning; continuous operation; sublease rights |
| Binding carve-outs | Non-binding statement, plus binding confidentiality and exclusivity |
New to lease structures? Start with the types of commercial leases, then the detail on a triple net (NNN) lease, a modified gross lease and gross vs. net lease. On a net deal, learn how CAM charges are calculated first.
Where to pushWhich LOI Terms Should Tenants Negotiate Hardest?
Push hardest on the terms Troutman Pepper Locke says belong in the LOI itself: options, use and exclusives, improvements, free rent and key dates. Troutman Pepper Locke calls it imperative that early termination, first-refusal, expansion and contraction rights be expressly set forth in the LOI.
If you have absolute dealbreakers, make them clear. Nolo advises stating accurately the terms you won’t compromise on and strengthening your position by conceding on the ones you can.
Hypothetical example: on a 60-month lease, 3 months of free rent abates 3 ÷ 60 = 5% of the scheduled base-rent months. Write the months and their timing into the LOI.
How Much Leverage Do Tenants Have in the Inland Empire Right Now?
In industrial, a good deal: CoStar’s Q3 2026 report states that “leverage remains with occupiers.” In retail, CoStar says landlords’ pricing power is limited.
CoStar, Inland Empire Industrial Market Report, Q3 2026
- Vacancy measured 8.7% as of 2026Q3; availability measured 12.5%, trending at a 15-year high.
- One to several months of free rent is common for new, larger leases of 5 years or longer.
- The triple-net asking average for available space is about 25% below its 2023 peak; with concessions, CoStar reports effective rental rates up to 40% lower, depending on location, size and vintage.
- Sublease space is 19% of total availability and trades at a discount of more than 20% to directly listed space.
CoStar, Inland Empire Retail Market Report, Q3 2026
Retail availability measured 6.6% as of 2026Q3, still meaningfully above 2022 lows but improving gradually as tenant demand strengthens; landlords’ ability to push market pricing higher is limited.
The landlord’s situation matters too: Nolo notes some landlords require financial statements with your LOI, and one who needs lender approval will be less flexible on rental rates. These are market-wide figures, not any single city’s. For rent ranges and cost math, see what warehouse space costs in the Inland Empire and our Inland Empire industrial market page.
Next stepsWhat Happens After Both Sides Sign the LOI?
Formal negotiation and lease drafting begin, usually with the LOI as the guide. With California requiring a lease longer than one year to be in writing and signed, the LOI is a starting point, not the finish line.
If the landlord sends the LOI, don’t ignore it; silence can give the landlord a false impression that might derail negotiations later. Any written response should say clearly that you consider the landlord’s terms non-binding. The remaining steps are in the full commercial leasing process, and tenant representation explains what a tenant-side advisor handles.
Common questionsCommercial Lease LOI: Frequently Asked Questions
Short answers to the questions tenants ask most.
What is a letter of intent for a commercial lease?
It is a document landlords and tenants use to outline a commercial lease’s basic terms, such as space size, lease length and rental rate. It is usually drawn up after the tour and before formal negotiation.
Is a commercial lease LOI legally binding?
Usually not, but a court may find an LOI enforceable. State clearly that it is non-binding until both parties execute and deliver a lease, and have an attorney review the wording.
Which parts of an LOI are usually binding?
Confidentiality and exclusivity are examples of provisions parties may want binding on signing. Exclusivity stops the landlord from marketing the space to others while you negotiate.
Who writes the letter of intent, the tenant or the landlord?
Typically the tenant, the tenant’s real estate broker or the tenant’s attorney prepares it, but some landlords prepare them too.
What should a tenant include in a letter of intent to lease?
At minimum: the property address, both parties’ names, the space size and suite, the lease term and move-in date, the rental rate and what it includes, the intended use, and a non-binding statement. Add parking, renovations, sublease rights, renewal and expansion options, signage and free rent if they matter.
What if the landlord sends me an LOI I don’t agree with?
Respond in writing rather than ignoring it, state that you consider the landlord’s terms non-binding, and be accurate about the terms you won’t compromise on.
Have Apex review your LOI before you sign
Send us the commercial lease letter of intent you are drafting, or the one a landlord sent you. Apex surveys the market, including sublease and off-market space, and negotiates the letter of intent and lease business terms for tenants. Robert Mendieta Jr., CCIM — Associate Broker · Commercial Division, DRE #01422904 — brings more than 20 years of commercial real estate experience.
Call Robert: (951) 977-3251Or request a free CRE consult with the form below.
Sources: Nolo, “Commercial Lease Negotiation: Letter of Intent to Rent,” modified April 9, 2021; Troutman Pepper Locke, “Letters of Intent in Commercial Real Estate Leases,” November 14, 2019; California Legislative Information, Civil Code §§1550, 1565 and 1624, current text viewed September 23, 2026; Cornell Law School Legal Information Institute, Wex entries “mutual assent” (last reviewed July 2023), “contract” (October 2025) and “promissory estoppel” (July 2025); CoStar Group, Inland Empire Industrial Market Report and Inland Empire Retail Market Report, Q3 2026, dated September 30, 2026 (licensed data, not linked).
Robert Mendieta Jr., CCIM · Associate Broker · Commercial Division · DRE #01422904 · Apex Real Estate Services · 3750 E. Florida Ave Suite A, Hemet, CA 92544 · (951) 977-3251 · robert@apex-res.com. Last updated: October 4, 2026.