A letter of intent for commercial real estate is the document that sets every negotiating baseline that follows. It is not the lease — but by the time the lease is drafted, most of the economic terms have already been locked by the LOI. Retail tenants who treat the LOI as a formality and save their negotiating energy for the formal lease are working from the wrong playbook.
This guide covers what retail tenants need to know about the commercial real estate LOI: what it contains, which terms are worth fighting for early, and how the LOI fits into the broader deal lifecycle that ends at committee approval and lease execution.
What Is a Letter of Intent in Commercial Real Estate?
A commercial real estate letter of intent is a preliminary term sheet between a prospective tenant and a landlord. It captures the broad strokes of the deal — rent, lease length, tenant improvement allowance, free rent, renewal options — before either side spends money on attorneys drafting a formal lease.
Most commercial LOIs are non-binding as to the final lease. They exist to create enough alignment between tenant and landlord to justify the cost of formal lease negotiation. The practical reality: the rent, term, and TIA agreed in the LOI almost always hold through lease execution. Landlords who accept an LOI rarely move the economics against a tenant without a substantive reason.
For multi-unit retail brands, the LOI is also the formal signal that a site has cleared internal approval. It marks the transition from site evaluation to active deal — and everything downstream (legal review, property due diligence, committee presentation, build-out timeline) runs on the clock that starts at LOI.
The deal lifecycle starts here
Understanding where the LOI sits helps clarify why it deserves more attention than it typically gets:
- Site identification and scoring — the team evaluates candidates, runs analog comparisons, and produces a committee-defensible analysis
- Letter of intent — tenant submits or negotiates a term sheet with the landlord
- Lease negotiation — attorneys redline the formal lease against the LOI baseline
- Due diligence — physical inspection, title, environmental, zoning
- Real estate committee approval — internal presentation with site score, trade area analysis, and LOI terms
- Lease execution and build-out — signed lease triggers construction and grand opening timeline
Missing a negotiating point at the LOI stage means either accepting worse economics in the lease or restarting negotiations after legal costs have already run — neither option is free.
Key Terms Every Retail Tenant Should Negotiate in the LOI
Base rent and escalations
The LOI should specify base rent by period, expressed as dollars per square foot per year (NNN or gross, clearly stated), plus annual escalation caps. Common escalations are fixed percentage bumps (2–3%) or CPI-linked increases. For a 10-year term, an uncapped CPI escalation can significantly erode the economics the committee approved.
Specify the escalation mechanism, the cap, and the measurement period in the LOI. An attorney will draft the language later, but the concept needs to be agreed before they do.
Tenant improvement allowance
The tenant improvement allowance (TIA) is the landlord's contribution to building out your space. It is typically expressed as a dollar amount per square foot and is one of the most negotiated points in any retail LOI.
TIA negotiation depends on several factors: lease term length (longer terms support higher TIA), landlord capitalization, and the condition of the space. Unfinished "cold dark shell" spaces command higher TIA than spaces with prior build-out. For retail brands building 30 to 50 locations per year, TIA variability across deals has a real effect on capital deployment — tracking it by deal in your pipeline gives your CFO a clearer picture of true expansion cost.
Free rent during build-out
Most retail tenants negotiate a free rent period to cover the construction window between lease execution and grand opening. Standard free rent ranges from one to three months for smaller build-outs to six months or more for ground-up or heavy-build spaces.
Pin the free rent period to a construction milestone, not a calendar date. If permits run long, a calendar-linked free rent clause can expire before you have a functioning store.
Co-tenancy protections
If your site's trade area depends on an anchor tenant — a grocery store, a big-box, a department store — negotiate a co-tenancy clause in the LOI. The clause gives you rent relief or termination rights if the anchor vacates.
Co-tenancy terms are easier to insert during LOI than during lease review. Landlords know co-tenancy clauses reduce their flexibility, and they'll resist adding them if the baseline was already set without one.
Exclusivity and permitted use
An exclusivity clause restricts the landlord from leasing adjacent space to a direct competitor. The scope of the exclusivity matters: "pet retail" is broader than "premium dog food specialty retail" and provides more protection. Define the exclusivity zone by distance or by center if you're in a shopping complex.
Permitted use language defines what business activities the lease allows in your space. Retail tenants should push for broadly worded permitted use rather than narrowly defined categories that could restrict future product line expansions or limit assignability.
Assignment and sublease rights
If your expansion strategy includes sale-leaseback transactions, mergers, or eventual franchise development, assignment rights matter. Standard retail leases allow assignment with landlord consent (not to be unreasonably withheld) — make sure that carve-out is in the LOI, not just in your redline draft later.
Renewal options
Renewal options give tenants the right — but not the obligation — to extend the lease at pre-agreed terms. The LOI should specify the number of renewal periods, the length of each, and whether rent resets to market or escalates from the prior period.
From a committee presentation standpoint, renewal options affect the site's NPV calculation. A location with two five-year renewal options at below-market rent looks different on a discounted cash flow than a lease with no renewals at market reset.
What Makes an LOI Binding vs. Non-Binding
Most commercial real estate letters of intent include explicit non-binding language, typically stated as: "This letter of intent is not intended to be binding on either party and creates no legal obligation to enter into a lease."
However, several LOI provisions often are binding by express agreement:
- Exclusivity / no-shop periods — the landlord agrees not to negotiate with other prospective tenants for a defined period (30 to 60 days is common) while the parties finalize the lease
- Confidentiality — the parties agree not to disclose deal terms or the existence of negotiations
- Deposit — if the tenant puts up a good-faith deposit, the conditions for refund are binding
The practical lesson for retail tenants: the LOI terms that aren't formally binding are still sticky. Landlords rely on LOI terms as the basis for lease drafting, and so do their attorneys. Walking back material economics after LOI acceptance creates friction — and sometimes loses the deal.
LOI vs. Lease: What Changes in Legal Review
Once the LOI is signed and exclusivity is in place, the landlord's attorney drafts the formal lease. The lease will address everything the LOI touched, in far more granular language, plus hundreds of operational provisions the LOI did not cover: maintenance responsibilities, signage rights, parking allocation, force majeure, insurance requirements, default cure periods, and more.
The lease review phase is where experienced real estate counsel earns their fee. Key areas where tenant-favorable language often gets eroded in the first draft:
- Operating expense (CAM) definitions — "controllable CAM" caps matter; uncapped expense categories can surprise you in years two and three
- Continuous operations clauses — some landlords require tenants to remain open during business hours; this matters for seasonal operators or brands considering a location for online fulfillment
- HVAC maintenance allocation — who owns HVAC maintenance and replacement is a significant economic variable over a long lease term
- Demolition and relocation rights — landlords may retain the right to relocate tenants or demolish non-anchor buildings; these provisions are worth resisting
None of these are LOI-stage items — but the LOI sets the tone. A well-negotiated LOI signals a sophisticated tenant and reduces the likelihood of aggressive first drafts.
From LOI to Committee: Building the Defensible Site Package
Signing an LOI is not the same as getting committee approval. At most multi-unit retail brands, internal approval is the critical gate — and the LOI terms are part of what the committee evaluates.
A complete committee package for a retail site typically includes:
- Site score and trade area analysis — the quantitative case for why this location meets your criteria
- Analog comparisons — comparable stores in similar trade areas and how they've performed
- LOI economic summary — rent, TIA, free rent, total occupancy cost as a percentage of projected sales
- Lease term and renewal analysis — NPV at multiple revenue scenarios
- Competitive landscape — direct and indirect competition within the trade area
- Risk flags — co-tenancy dependencies, construction timeline risks, demographic trends
Teams running 10 to 50 new locations per year need this package producible fast. If your real estate deal tracking software doesn't connect the site score to the LOI terms and auto-populate the committee summary, your analyst is rebuilding the same packet from scratch every cycle.
GrowthFactor's platform scores sites in roughly 10 seconds and maintains deal context — including LOI terms, broker correspondence, and analog comparisons — in a single workspace. TNT Fireworks used it to evaluate 153 locations in a single season and open every one on time and on budget.
Common LOI Mistakes Retail Tenants Make
Treating the LOI as a preview, not a negotiation
The LOI is the negotiation. By the time the lease is drafted, you're revising language against a baseline the landlord's attorney has already encoded. Tenants who reserve their negotiating energy for the lease review phase are arguing over words when they should have been arguing over economics.
Skipping the exclusivity ask
Multi-unit retail brands building aggressively sometimes accept LOIs without exclusivity periods — either because they're moving fast or because the broker doesn't push for it. An LOI without exclusivity leaves the landlord free to show the space to competing prospects while your legal team is spending money on lease review.
Letting LOI terms live outside the deal record
If your LOI terms exist in an email chain and a PDF that isn't linked to the deal record, you're creating risk. When the lease draft comes back three weeks later, someone will have to reconstruct what was actually agreed. A centralized deal pipeline with LOI terms captured at signing eliminates this problem.
Under-negotiating TIA because the market feels tight
TIA negotiation varies with market conditions, but most tenants leave value on the table by accepting a landlord's opening TIA without countering. Even in tight markets, landlords generally have room to move — particularly on longer lease terms. Your real estate deal analysis should model how TIA affects your all-in development cost per location before you accept a number.
The Information You Need Before Sending an LOI
A well-structured LOI requires data you should have collected before the letter goes out. Sending an LOI without having done your site analysis is a common mistake — it means your committee approval and your LOI are running in parallel rather than in sequence, which creates internal pressure to approve deals because the clock is already ticking.
The site selection process should produce a clear go/no-go on a location before you engage seriously on LOI terms. That means:
- Trade area demographic profile
- Foot traffic counts and patterns
- Competitor proximity and co-tenancy risk
- Comparable store performance in analogous markets
- Total occupancy cost as a percent of projected revenue
The LOI terms need to fit inside the financial model you bring to committee. If the landlord's rent ask puts occupancy cost above your company's underwriting threshold, you need to know that before the LOI, not after.
This is where software-supported commercial real estate data pays for itself. A site that looks good on paper but fails the occupancy cost test at the landlord's asking rent is a site worth walking away from early — before you've spent legal fees on an LOI and lease review.
What Comes After the LOI
Once the LOI is executed and exclusivity is in place:
- Legal review — lease drafting, redlining, final negotiation
- Property due diligence — physical inspection, environmental assessment, zoning confirmation
- Committee presentation — internal approval with site package, LOI economics, and risk assessment
- Lease execution — final signatures, deposit, notice of commencement
- Build-out and grand opening — construction, permitting, opening
Most retail expansion teams manage multiple deals at different stages simultaneously. A VP of Real Estate with 20 active deals needs visibility into which are in LOI, which are in legal, which are awaiting committee, and which are in build-out — without digging through email. That pipeline visibility is what separates a team that scales to 30 locations per year from one that runs out of bandwidth at 10.
Practical Checklist: Before You Send the LOI
Before submitting a letter of intent on any commercial retail site, confirm:
- Site analysis is complete and meets your internal underwriting criteria
- Trade area demographics and foot traffic data support the revenue projection
- Comparable store performance in analogous markets is in the deal record
- Proposed rent and TIA produce occupancy cost within your approved range
- You have a position on exclusivity, co-tenancy, permitted use, and renewal options
- Your legal team is briefed and available to begin lease review at exclusivity start
- The deal is tracked in your pipeline with LOI terms captured at the right stage
An LOI sent before this checklist is complete puts the cart before the horse — and creates pressure to approve a site the committee hasn't actually evaluated.
The letter of intent sets the deal. What happens in real estate lease negotiation after it is signed is legal refinement of terms you've already agreed to in principle. Retail tenants who enter LOI negotiations with strong site data, clear underwriting thresholds, and a tracked deal pipeline are the ones who close favorable leases on time.
If your current workflow means the committee sees a site for the first time after the LOI is already signed, the sequence is backwards — and it's costing you negotiating position on every deal.