Learn what happens after a letter of intent is signed in a commercial real estate deal, from due diligence and contract drafting to financing and closing.
A signed letter of intent in commercial real estate confirms something important: both parties have agreed on price, timeline, and core deal terms. That alignment is real progress. It does not, however, mean the transaction is complete.
Between the LOI and the closing table, buyers and sellers still need to complete property investigations, draft binding legal documents, secure financing, and satisfy contingencies. Any one of these steps can reshape the deal.
For anyone entering commercial real estate for the first time, understanding what follows the LOI is essential preparation. Newcor Commercial Real Estate helps clients navigate every stage of this process with commercial real estate expertise grounded in local market knowledge.
This article covers each stage that follows a signed LOI, explains where deals commonly change, and outlines what buyers, sellers, landlords, and tenants can do to prepare early.
Key Takeaways After a Signed LOI
- A signed LOI establishes agreement on major deal terms but is typically non-binding on price and closing conditions.
- Due diligence is the most labor-intensive phase after the LOI, covering financial records, physical inspections, environmental reviews, and title searches.
- The purchase agreement or lease translates LOI terms into a binding contract with specific contingencies, default remedies, and closing logistics.
- Newcor Commercial Real Estate helps clients prepare for post-LOI complexity by providing market-grounded guidance at every stage of the transaction.
- Early preparation on financing, legal review, and property documentation reduces the risk of delays or deal renegotiation after the LOI stage.
Why the LOI Matters
The LOI serves as a written framework that aligns both parties before they invest significant time and money in attorneys, inspections, or appraisals. It usually captures the proposed price or lease rate, the earnest money deposit, the due diligence timeline, and the target closing date.
For clients working with a brokerage team, these terms are often shaped by an advisor who understands the local market and the likely pressure points ahead.
Most commercial LOIs are non-binding on their core business terms, which means either party can walk away without legal consequences related to price or structure. That flexibility is deliberate. It allows negotiation to happen quickly on a short document rather than inside a lengthy binding contract.
What the LOI Usually Locks In
Certain provisions inside the LOI are typically binding even when the rest is not. Confidentiality clauses prevent either side from disclosing deal terms to outside parties.
Exclusivity periods can prevent the seller or landlord from negotiating with other buyers or tenants for a defined window. Experienced advisors help clients negotiate these terms before signing.
These binding provisions protect the buyer's investment in due diligence. Without exclusivity, a seller could use one offer as a negotiating tool to extract a higher price from a competing buyer while the first buyer is spending money on inspections and legal review.
What the LOI Usually Leaves Open
The LOI does not address many critical details that must be resolved before closing. Representations and warranties, default remedies, the exact condition of the property at closing, proration methods for taxes and rents, and the form of deed all remain for the binding agreement.
Dispute resolution mechanisms, assignment rights, and post-closing obligations are also left for the formal contract. These items carry real financial and legal weight, and resolving them is where the next phase of the transaction begins.
The Three Workstreams That Follow a Signed LOI
Once both parties execute the LOI, the transaction enters its most intensive phase. Three workstreams typically run in parallel: property due diligence, contract drafting, and financing approval. Each one involves its own timeline, professional team, and decision points.
Due Diligence and Property Review
The due diligence period is the buyer's window to investigate every aspect of the property before committing to close. Commercial deals typically allow 30 to 90 days for this work, depending on asset complexity. The scope varies by property type, whether office, industrial, retail, or land.
Financial due diligence starts with the rent roll and trailing twelve-month operating statement. The buyer compares these records against actual lease agreements and bank deposits to verify income. From the operating statement, the buyer calculates Net Operating Income, the figure that drives valuation and financing decisions.
Physical, Environmental, and Title Investigations
Physical investigations include a Property Condition Assessment, which evaluates the building's structural integrity and major systems. Environmental due diligence begins with a Phase I Environmental Site Assessment following the ASTM E1527 standard. If the Phase I identifies concerns, a Phase II investigation with soil and groundwater sampling follows.
Title review confirms that ownership is clear and identifies any liens, easements, or restrictions that could affect the buyer's intended use. An ALTA/NSPS Land Title Survey maps boundaries, improvements, and encroachments. Zoning verification confirms that the current use and any planned changes comply with local regulations.
Drafting the Purchase Agreement or Lease
While due diligence is underway, legal counsel drafts the binding contract. For a sale, this is the Purchase and Sale Agreement. For a lease, this is the formal lease document. Either way, the contract translates the LOI's outline into enforceable terms.
The PSA specifies earnest money provisions, contingency deadlines, closing cost allocations, and what happens if problems surface during due diligence. Well-drafted agreements give the buyer the right to terminate and recover the earnest money if inspections reveal material defects or title issues the seller cannot cure.
On the leasing side, the formal lease addresses tenant improvement allowances, operating expense structures such as NNN (triple net) terms, renewal options, and permitted use provisions. Each of these items carries long-term financial implications that the LOI only outlined at a high level.
Financing, Approvals, and Contingencies
Securing a commercial mortgage requires substantial documentation. Lenders evaluate both the property's income performance and the borrower's financial capacity before committing capital.
Two ratios often shape the lending discussion: the loan-to-value ratio and the debt service coverage ratio, which measures whether income covers loan payments. For investment transactions, understanding these metrics is central to structuring opportunities through Newcor Capital.
Lenders also require an independent appraisal, proof of property insurance, and sometimes environmental insurance. If the appraisal comes in below the contract price, the buyer may need to renegotiate or contribute additional equity.
Why Deals Can Still Change After the LOI Stage
The period between LOI execution and closing is where the condition of the property meets the assumptions of the deal. Due diligence frequently reveals circumstances that were not apparent during initial negotiations. What this means for the parties involved: renegotiation, adjustment, or in some cases, termination.
Environmental assessments may identify contamination that requires remediation. Property condition reports may show deferred maintenance that changes the deal's economics. Estoppel certificates from tenants may contradict the rent roll or reveal side agreements with the previous owner.
Each of these findings creates a potential renegotiation point. The purchase price may be adjusted, the seller may agree to escrow holdbacks for anticipated repairs, or contingency deadlines may be extended.
How to Prepare Early
The most effective way to reduce post-LOI surprises is to prepare before the LOI is even signed. Sellers and landlords who assemble property documentation early, including rent rolls, operating statements, and environmental reports, give buyers fewer reasons to renegotiate.
The National Association of Realtors publishes commercial real estate market insights that can help you stay grounded in broader market conditions while you plan your next move.
Buyers benefit from engaging legal counsel and a commercial real estate advisor before submitting the LOI. Tenants should clarify space requirements and budget constraints before the LOI stage as well.
Newcor Commercial Real Estate works with clients across all sides of the transaction, from tenant representation to buyer advisory and development consulting. To start a conversation about your next transaction, visit the contact page.
In Conclusion: What Signing an LOI Really Means
Signing a letter of intent in commercial real estate is a meaningful step forward. It confirms that both parties are aligned on core terms and prepared to invest time and resources into completing the transaction.
The LOI is a starting point for the binding work ahead, not the finish line. Due diligence, contract drafting, financing, and contingency resolution all follow. Each stage can reshape the deal in ways the original terms did not anticipate.
Approaching the post-LOI process with clear preparation, the right advisors, and realistic expectations can reduce friction and keep the transaction moving. That work starts well before the closing table.
FAQs About CRE Letters of Intent
Is a letter of intent legally binding in commercial real estate?
The core business terms in most commercial LOIs, such as purchase price and closing date, are non-binding. However, specific provisions like confidentiality and exclusivity clauses are often binding. Newcor Commercial Real Estate advises clients to review every LOI provision with legal counsel before signing.
How long does the due diligence period last after an LOI is signed?
Commercial real estate due diligence periods typically range from 30 to 90 days, depending on property complexity and the amount of documentation available upfront. Larger or more complex assets generally require longer timelines for thorough investigation.
Can the purchase price change after the LOI is signed?
Yes. Because LOI terms are typically non-binding, due diligence findings can lead to price renegotiation before the binding contract is executed. Newcor Commercial Real Estate helps clients evaluate whether findings warrant a price adjustment and how to structure that conversation effectively.
What is a tenant estoppel certificate?
An estoppel certificate is a signed statement from a tenant confirming the current status of their lease, including rent amounts, security deposits, and any outstanding claims. Buyers use these certificates to verify that the property's income matches what the seller represented.
What role does a commercial real estate advisor play after the LOI?
An experienced advisor coordinates the due diligence process, reviews findings, identifies potential renegotiation points, and helps structure the binding agreement. Newcor Commercial Real Estate provides this guidance across office, industrial, retail, and land transactions. Read more about how the firm approaches transactions on the Newcor news page.