The email comes in on a Thursday afternoon with a PDF attached and a friendly line in the body: “Just a non-binding LOI to get us on the same page. The lawyers will sort out the details later.” You read the two pages. Rent, term, square footage, a target move-in date. It reads like a handshake written down, and you sign it that evening because you want the space and you're tired of looking. Here's the uncomfortable part. That two-page document you were told didn't really matter was probably the last point in the whole deal where you had real leverage. Everything after it is a negotiation you've already half-lost, and nobody is going to tell you so.

The document that “doesn't count” is the one that counts most

A letter of intent, or LOI, sums up the business terms of a proposed lease before anyone drafts the lease itself. Most say near the top that they are non-binding, apart from a few named provisions. As a legal statement, that's mostly accurate. As a description of how the deal will actually go, it's misleading.

This is what happens once you sign. The landlord's attorney opens the landlord's standard lease form, a document often dozens of pages long and written over years to protect the owner. They plug in the terms from your LOI. Anything the LOI doesn't cover falls back to whatever the form says. The personal guarantee, the assignment restrictions, the definition of operating expenses, the restoration obligations at move-out: if your LOI said nothing about them, the draft you get will settle them in the landlord's favor.

Then you try to change them, and you run into an unwritten rule. In commercial real estate, reopening terms that seem settled is called “retrading,” and people resent it. If you push back on the lease draft over something you could have raised at the LOI stage, you can come across as the tenant who agreed to one deal and is now trying to get a different one. Your requests might be perfectly reasonable. They still cost goodwill, because the other side believes the deal was already done.

Why your leverage disappears the moment you sign

What changes when you sign isn't legal. It's psychological, and the mechanisms behind it are well documented.

Before the LOI, the landlord's broker knows you're touring other buildings. You're a prospect who might leave, and that possibility is your leverage. After you sign, most tenants quietly stop looking. As far as you're concerned, the market has shrunk to one address, and the other side can tell.

Then commitment and consistency kick in, the tendency Robert Cialdini described in his research on influence. Once we've committed to something, especially in writing and in front of other people, we feel pressure to act in line with that commitment. You've told your business partner, maybe your staff, maybe your spouse. Walking away now means admitting the decision was wrong.

The sunk cost effect adds to it. You've paid an attorney to start reviewing, maybe had an architect sketch a layout, and spent weekends picturing where the front counter goes. Behavioral research has shown again and again that people keep investing in a course of action because of what they've already put in, even when the future terms no longer justify it.

The quietest pressure is the endowment effect, which grows out of the loss-aversion work of Daniel Kahneman, Amos Tversky, and Richard Thaler. We value something more once we feel it's ours. After you've signed the LOI, the space stops feeling like an option and starts feeling like your space. Losing it no longer feels like passing on an opportunity. It feels like losing something you own, and people will accept a lot of bad terms to avoid feeling a loss.

None of this requires the landlord to be scheming. It's just how the deal is structured. But you should know that by the time the forty-page draft arrives, the version of you reading it is far more motivated to close than the version who signed the LOI.

Is a commercial lease letter of intent ever binding?

Sometimes, and the exceptions cut both ways.

Most LOIs list specific provisions that are binding, usually confidentiality, sometimes an exclusivity or “no-shop” period during which you agree not to negotiate with other landlords, and occasionally a deposit. Those sentences can bind you the day you sign, so read them as carefully as you'd read the lease.

At the edges, courts look at the language and how the parties behaved, not just the label. An LOI that never clearly says it's non-binding, or parties who start acting as if a deal exists, can lead to disputes about whether a contract was formed. Some jurisdictions also recognize preliminary agreements that commit both sides to keep negotiating in good faith, even without agreement on the final terms. How this works varies a lot from state to state, so a local attorney is worth more here than any general rule.

The flip side matters just as much. A non-binding LOI usually doesn't bind the landlord either. Until the lease is signed, the landlord can generally walk away or lease the space to someone else. So you can be locked into exclusivity while they can still leave. If you agree to a no-shop period, it should be short, and ideally the landlord should agree to the same.

What belongs in the LOI that most tenants leave out

The usual LOI covers the obvious terms: base rent, escalations, term length, free rent, the improvement allowance. Those matter, but they're also the terms the landlord expects to negotiate. The terms that come back to hurt tenants are the ones nobody brought up early.

Here's a test for any lease term: if the landlord refused this in the lease draft, would I walk away? If the answer is yes, it belongs in the LOI, stated specifically, not as “to be negotiated in the lease.”

For most small and mid-sized tenants, that test points to five areas. First is personal risk: whether there's a personal guarantee at all, a cap on it, and a point at which it burns off. Second is your exit: the right to assign or sublet with the landlord's consent “not to be unreasonably withheld,” and the right to transfer the lease to someone who buys your business. Third is expenses that grow without anyone noticing: a cap on controllable operating expenses and an exclusion for capital improvements. Fourth is time: renewal options with a defined way to set the renewal rent, and real remedies if the space is delivered late. Fifth is use: a permitted-use clause broad enough to allow for how your business might change.

You won't win every one of these. But a term you raise at the LOI stage is a normal negotiation. The same term raised after the draft arrives looks like retrading.

Your next moves

  • Write down your three walk-away terms tonight. Before you sign any LOI, name the three lease provisions you'd actually walk away over, then check that each one appears in the LOI in specific language and not as “subject to lease negotiation.”
  • Search the LOI for “binding,” “exclusive,” “confidential,” and “deposit.” Read every sentence that contains one of those words. Those are the parts that may bind you now, whatever the heading says.
  • Ask for the landlord's standard lease form before you sign the LOI. Ask the landlord's broker for it directly, then skim the guaranty, assignment, and operating-expense sections so you know what you'll get by default if you stay silent.
  • Keep one alternative space in play until the lease is signed, not just the LOI. Schedule a second tour this week and let the landlord's broker know you're still looking. That's how you keep your leverage.
  • Pay for a one-hour attorney review of the LOI itself. Most tenants only bring in a lawyer once the lease draft arrives. An hour on the two-page LOI usually costs less than arguing every term against the form later.

Seeing the deal before the deal sees you

The lesson of the LOI is that what's left out shapes the deal as much as what's written in, and gaps are hard to spot when you're excited about the space and worn out from searching. That's the problem Closeout was built for. It helps tenants read commercial lease documents clearly, bringing up the terms that matter and the ones that are missing, while there's still time to raise them without anyone calling it a retrade. If you're about to sign an LOI, or you already have and the draft is on its way, you can take a closer look with Closeout before you sign.