You’ve found the right property. The seller is ready to negotiate. Everyone is eager to move forward. So why slow things down with a Letter of Intent?

Buyers and sellers both sometimes view the Letter of Intent (LOI) as an unnecessary formality or an extra step before the “real” paperwork begins. But it’s important to know that in Virginia commercial real estate transactions, skipping or rushing through the LOI is one of the most common and costly mistakes a party can make. At Davis Law Group, we’ve been working with commercial real estate transactions for decades, and here’s what we want you to know.

What Is a Letter of Intent?

A Letter of Intent (sometimes called a term sheet) is a document that memorializes the key terms of a proposed commercial real estate transaction before the parties draft a formal Purchase and Sale Agreement (PSA). It functions as a type of roadmap, establishing where the deal is going before anyone commits to the journey.

Standard LOIs address several core items:

• Property description: the type of property, street address, and project name
• Purchase price: at minimum, a purchase price with notes on any deductions at closing
• Deposit: the amount, payment dates, and conditions for release
• Timing: the due diligence period and anticipated closing date
• Prorations and apportionments: how taxes, rent, insurance, and closing costs will be paid by the parties
• Confidentiality: restrictions on sharing LOI terms with the public or other parties
• Exclusivity: whether the seller may continue marketing the property while the PSA is being negotiated

“But It’s Not Legally Binding”

The most common reason parties want to skip the LOI is also the most misunderstood: “It’s not legally binding anyway, so what’s the point?”

It’s true that a well-drafted LOI is generally not a binding contract obligating either party to complete the transaction, but that attitude overlooks a major step in the process. In practice, the key economic and business terms spelled out in an LOI are treated as non-negotiable once signed. A party that tries to alter those terms during PSA negotiations by changing the price, adjusting deposit conditions, or timing of payments or closing on the transaction, may end up losing the deal and harm their reputation in the community.

Commercial real estate in Virginia, and particularly in Hampton Roads, is built around relationships, and how each party conducts itself in a deal has consequences in future transactions and with local lenders. Furthermore, certain provisions within an LOI are legally binding, even when the overall document is not. The most common examples include:

• Confidentiality clauses: both parties are typically bound to maintain strict confidentiality and keep the terms of the transaction private
• Exclusivity (no-shop) provisions: the seller may be contractually prohibited from negotiating with other buyers for a set period of time
• Cost reimbursement provisions: in some deals, the LOI requires the seller to reimburse the buyer’s out-of-pocket expenses if a PSA is never executed

When your LOI includes these types of provisions, it should include explicit language identifying which sections are binding and which are not. This is why having legal counsel involved before an LOI is signed is so important.

What Happens Without an LOI

Without an LOI, the parties discover mid-PSA that they never actually agreed on the fundamentals. Disputes over the purchase price structure, deposit amounts, or who pays transfer taxes can derail negotiations that were weeks in the making. The time, money, and goodwill spent getting to the PSA stage can crumble quickly. The party with less leverage finds itself negotiating from a weaker position during PSA drafting. Virginia commercial real estate markets move quickly, and a seller managing multiple offers has little incentive to be patient with a buyer whose LOI left key items unresolved. A thoroughly negotiated LOI avoids this scenario.

Virginia-Specific Considerations

Virginia does not impose specific statutory requirements on LOIs for commercial real estate or business transactions, but a few practical points are worth noting.

Legal descriptions do matter in the long run. An LOI typically identifies the property by address, not legal description. That’s fine at this stage, but the legal description becomes critical when the deed is prepared, and your attorney should confirm its accuracy well before closing.

Transfer taxes and recording fees are customarily allocated between the parties in Virginia. The LOI is the right place to address who pays the costs for these assessments. Virginia imposes both a state grantor’s tax and a local recordation tax, and buyers should understand these and the costs of title searches, surveys, environmental reports and lender’s fees, before committing to a price.

Involve Your Attorney Before Closing

The important takeaway here is to involve legal counsel during LOI negotiations, not just for the closing process. Many buyers and sellers assume attorneys are only needed when the formal PSA is ready for review when in fact, the most important conversations happen earlier.

At Davis Law Group, we regularly work alongside buyers, sellers, and their brokers during negotiation to ensure that the LOI accurately reflects the agreement of the parties and that is clear and unambiguous. Material terms should be clearly identified, and the economic terms set out in the LOI must accurately reflect what both parties have agreed to during negotiations. A few hours of legal attention at the LOI stage routinely prevents weeks of costly renegotiation later.

So, while the LOI may not be the document that legally transfers ownership, it does set the tone for every step that follows. If you are considering a commercial property acquisition or sale and have questions about the LOI process, contact our office to schedule a consultation.