Strategic LOI Lock-Down Clauses: Securing a Deal

05/12/2025

Deal Book

In 2025’s competitive commercial real estate arena, landing a deal often requires more than just the highest bid. Market dynamics in both gateway cities and fast-growing Sun Belt markets have created intense bid competition, pushing investors to seek any edge. At the same time, new technologies – from AI-driven deal sourcing to algorithmic underwriting – are accelerating deal timelines and giving buyers the ability to mobilize offers at record speed. Sellers, facing a frenzy of interest, have begun to favor buyers who offer not only strong pricing but also the greatest certainty and speed of closing. In this context, sophisticated buyers are deploying aggressive Letter of Intent (“LOI”) clauses designed to lock out competitors early in the negotiation. These so-called “lock-out” provisions (once informally dubbed "kill-shot" clauses for their decisive impact) aim to deliver immediate exclusivity and momentum to the buyer, while minimizing commitment until a formal purchase and sale agreement (PSA) is signed.

The strategic goal of these LOI terms is clear: secure a short-term exclusivity window and deter the seller from entertaining other offers, all without fully binding the buyer to consummate the purchase prematurely. By front-loading elements like exclusivity and partial deposits into the LOI, a buyer can gain control of a deal before competitors have time to react – a significant advantage when sellers value speed and certainty over a marginally higher price. Below, we explore these powerful LOI clauses in depth, outline how they function, and discuss best practices and risks in using them.

LOI Fundamentals: Binding vs. Non-Binding Terms

Letters of intent occupy a gray area between a handshake and a contract. By design, most business terms in an LOI are non-binding, serving as a roadmap for the deal rather than a firm commitment. Price, due diligence timelines, contingencies, and other substantive terms are usually proposals to be finalized in the definitive agreement. However, an LOI typically carves out certain provisions as legally binding despite the document’s overall non-binding nature (morganandwestfield.com) . Common binding clauses include confidentiality (keeping deal discussions and materials private), exclusivity (“no-shop” periods preventing the seller from negotiating with others), and sometimes expense allocation or governing law.

It’s critical to explicitly distinguish which LOI clauses are binding. A well-drafted LOI will state that, except for specified sections (e.g. exclusivity, confidentiality, and perhaps a break-up fee provision), the LOI is only an expression of intent and not enforceable. This clarity protects both sides: the buyer isn’t legally obligated to close on the tentative terms, and the seller retains flexibility – except where they’ve given it up in a binding clause. Importantly, sellers and buyers should beware of vague obligations to “negotiate in good faith” or use “best efforts” to finalize the transaction. Courts have sometimes interpreted such language as creating an implicit duty to keep negotiating and even awarded damages for a failure to reach a final agreement (corporate.findlaw.com) . To avoid unintended liability, sophisticated parties often strike or narrowly define any good-faith negotiation commitments in the LOI stage.

From the seller’s perspective, signing an LOI involves a trade-off. Sellers value the certainty an exclusive LOI can provide – it signals a serious buyer and reduces the risk of deal fatigue or retrades (price renegotiations) down the line. But they also give up the chance to shop the deal for a potentially better offer during the exclusivity window. State laws vary in how they enforce LOIs, but a clearly worded exclusivity clause is generally enforceable in court (sinailawfirm.com) . This means a seller who breaches a no-shop agreement (for instance, by soliciting another buyer during the exclusivity period) can face legal consequences, ranging from injunctions preventing the alternative sale to monetary damages. In short, while an LOI is “preliminary,” the binding components within it carry real weight and must be approached with the same caution as a formal contract.

Core LOI Lock-Out Mechanics

To effectively lock out competitors using an LOI, buyers incorporate several key clauses that work in tandem. These core lock-out mechanisms focus on exclusivity, speed, and reducing the seller’s latitude to reconsider the deal. Each serves a specific purpose in cementing the buyer’s pole position before a purchase contract is signed. Below are the primary weapons in this strategic arsenal:

Exclusivity (No-Shop) Clauses

The cornerstone of any lock-out LOI is the exclusivity or “no-shop” clause. This provision prohibits the seller from soliciting or entertaining offers from other parties for a defined period of time. In practice, the exclusivity period gives the buyer a head start to conduct due diligence and negotiate the final contract without the threat of another bidder swooping in (themalawyer.com) . For example, an LOI might stipulate that from the date of signing until 30 days thereafter (or until a definitive agreement is signed, whichever comes first), the seller must deal exclusively with the buyer.

Duration: Exclusivity windows in LOIs typically range from about 15 to 45 days in today’s market, depending on the asset and complexity. Simpler deals (a single-tenant net-leased property, for instance) might warrant only a two-week no-shop period, whereas a multi-tenant or portfolio transaction might need 30–45 days to accommodate diligence on multiple leases and financials. Sellers are often wary of long lock-ups – as they should be, since a drawn-out exclusivity can cool market momentum – so buyers should calibrate the period to be just long enough to get to a Purchase and Sale Agreement. One common compromise is offering an initial exclusivity term (say 30 days) with an automatic extension if certain milestones are met or if the seller causes delays. For instance, the LOI could state that if the seller has not delivered all required due diligence documents within the first 5 days, the exclusivity period extends day-for-day until the information is provided. This creates a fair incentive: the seller won’t drag their feet on providing information, and the buyer won’t lose exclusivity time due to seller delays.

Enforcement and Remedies: To give the no-shop clause teeth, LOIs often include a remedy section. The buyer may specify that it can seek specific performance or injunctive relief if the seller breaches exclusivity – effectively, the right to get a court order halting the seller from closing with someone else. Additionally, many LOIs impose a break-up fee or liquidated damages if the seller breaches the exclusivity agreement and sells to another party (corporate.findlaw.com). Such break-up fees are typically pegged to compensate the jilted buyer’s costs and lost opportunity; a fee in the range of 1% to 3% of the deal value is common and generally viewed as reasonable (newpointlaw.com). The threat of paying a break-up fee both deters the seller from entertaining other bids and ensures the buyer is at least partly made whole if the seller does stray. (Notably, overly punitive fees much beyond market norms may not be enforceable in some jurisdictions due to liquidated damages laws – more on that in the risk discussion below.)

“Go-Hard” Deposit Structures

In competitive real estate deals, the earnest money deposit has evolved from a routine formality into a strategic lever. In a standard transaction, a buyer’s deposit is placed in escrow after signing the PSA and remains refundable during due diligence contingencies. A “go-hard” deposit structure, by contrast, involves making some or all of the deposit non-refundable either upon signing the LOI or upon certain milestones – essentially putting real money at risk earlier to show commitment (bestevercre.com) . The message to the seller is powerful: the buyer is so confident in the deal that they’re willing to forfeit a significant sum if they walk away.

Several variants of hard deposit arrangements are used:
- Hard at LOI Signing: The most aggressive approach is to have a portion of the deposit go hard as soon as the LOI is executed (or after a very short initial review period). For example, a buyer might wire 1% of the purchase price into escrow with the stipulation that this amount becomes non-refundable on Day 1 of exclusivity (bestevercre.com) ). If the buyer later backs out for any reason not allowed by the LOI, the seller keeps this money. In some cases, this upfront “option payment” can be structured as a separate fee for exclusivity – effectively paying the seller for the opportunity to tie up the property. (Such an option fee is often credited toward the price at closing, so it’s only lost if the buyer fails to close.)
- Tiered or Milestone-Based Hardening: Another approach is a tiered deposit schedule. A buyer might put down, say, a 2% deposit, with a term that 0.5% is immediately non-refundable, and the remaining 1.5% stays refundable until a certain due diligence milestone (e.g. completion of inspections or delivery of tenant estoppel certificates). Once that milestone is satisfied, the remaining deposit (or another increment) “goes hard.” This staggered approach can deter the seller from entertaining other bidders (since some money is committed upfront) while still giving the buyer a short window to uncover any deal-breakers before all their money is at risk.
- Escrow Increase for Extensions: Buyers often sweeten the deal by offering that if they request an extension of due diligence or exclusivity, they will increase the non-refundable portion of the deposit. For example, an extra 0.5% hard money could be added to get an additional two weeks of exclusivity. This creates a sense that the seller is being compensated for granting more time.

From 2023 onward, such hard-money tactics became increasingly common in hot asset classes like multifamily. Brokers reported that even a slightly lower priced offer would win if it came with significant day-one non-refundable earnest money, beating higher offers with standard contingencies. A typical range for total earnest money in a real estate purchase is around 1%–3% of the purchase price (bestevercre.com), though the exact figure varies by deal size. For big deals or portfolios, deposits can be much larger in dollar terms but often still fall in that percentile range. Offering to make that deposit (or a chunk of it) immediately hard elevates the bid’s credibility enormously. However, buyers should only deploy this tactic when they have a high degree of upfront comfort with the asset – often after significant preliminary due diligence even before the LOI. Once the money is hard, backing out means forfeiting it, barring seller default. (For context, some seasoned sellers view an LOI with an exclusivity period as essentially giving the buyer a free option; insisting on a non-refundable deposit is one way to ensure the seller is getting consideration for that option (sinailawfirm.com).)

Access & Data-Dump Clock

In an aggressive LOI, time is truly of the essence – and that includes time for due diligence. A data delivery clock clause forces the transaction into motion immediately by obligating the seller to provide critical documents and access within a very short window. For example, the LOI may require that within 24 hours (or 2 business days) of signing, the seller must open a complete digital data room with all key due diligence materials (rent rolls, lease copies, income/expense statements, title reports, environmental surveys, etc.). The rationale is twofold: First, it prevents the seller from stalling or using up the exclusivity period before the buyer even has the information needed to evaluate the deal. Second, it tests the seller’s preparedness and sincerity – a seller who drags on basic deliverables might be a red flag.

These clauses are often coupled with tolling or extensions on exclusivity as mentioned earlier. In essence, the clock for the exclusivity period won’t start (or will be paused) until the seller has delivered all items on the agreed checklist. Simply put, the buyer’s due diligence period does not begin until the buyer has received all the required documents. This way, the buyer isn’t penalized if the seller takes a week to produce, say, updated financials or tenant documents. In fact, many buyers incorporate such provisions directly into the deal timeline – for instance, stipulating that the exclusive period or inspection period will not commence until the date the seller produces the last of each required due diligence deliverable (thompsoncoburn.com). Some LOIs even enumerate consequences if the seller misses the deadline – e.g. the buyer can terminate the LOI and recover any deposit if documents are not provided on time, or the exclusivity automatically extends by the number of days of delay.

Additionally, robust LOIs sometimes include language that the seller must facilitate immediate access to the property and personnel. That could mean scheduling inspections, appraisals, or management meetings within the first few days of exclusivity. By front-loading inspections and meetings, the buyer accelerates their due diligence and signals to the seller that they are moving toward closing swiftly.

In short, the access and data-dump provisions ensure no time is wasted. They turn the LOI period into a sprint rather than an idle pause. For the seller, complying quickly is also beneficial – it demonstrates transparency and keeps the deal on track. The faster the buyer can vet the asset, the sooner a binding purchase agreement can be executed. From a legal standpoint, if an LOI explicitly obligates the seller to deliver certain documents, that promise can be enforceable just like exclusivity or confidentiality would be (sinailawfirm.com) . Thus, including a detailed checklist of required materials in the LOI not only guides the process, it gives the buyer recourse if the seller fails to cooperate.

Retrade-Shield Language

A frequent concern of sellers is the dreaded “re-trade” – when a buyer, after securing exclusivity or tying up the property, comes back to renegotiate a lower price citing issues found in due diligence. An advanced LOI can address this head-on by including retrade-shield language that limits the buyer’s ability to renegotiate the economics except under predefined circumstances.

In practice, this clause might be phrased as follows: The buyer acknowledges that it will purchase the property on an “as-is” basis except for specific, material issues uncovered in due diligence that were not previously disclosed by the seller. The LOI can define what counts as “material” – for example, any single problem that would cost more than, say, 2% of the purchase price to remedy, or any new legal encumbrance like an undisclosed lien or environmental contamination. If such a material adverse issue is discovered, the buyer reserves the right to propose a price adjustment or even terminate the LOI without penalty. However, short of that threshold, the buyer agrees not to request any reduction in price.

This effectively makes the road to closing a one-way street in the seller’s favor: the seller can’t increase the price or accept other offers, and the buyer won’t chip away at the price unless a bona fide major problem emerges. It provides the seller extra assurance that the deal they agreed to in the LOI won’t be undermined by minor due diligence findings. For the buyer, of course, it means doing more upfront homework and being comfortable with the property’s fundamentals before locking in the LOI terms. In competitive situations, buyers sometimes offer this no-retrade pledge to make their LOI more appealing – essentially saying “we won’t nitpick; only truly unexpected, significant issues will change our offer.”

Often this clause is paired with a representation that the seller has disclosed all known major issues in advance. The buyer might enumerate topics (title defects, environmental hazards, structural damage, zoning violations, outstanding litigation, etc.) and the seller asserts that to its knowledge, none of those exist beyond what has been provided. In effect, the LOI starts to resemble a condensed version of reps and warranties. If the seller later tries to soften those reps in the PSA, the buyer can point to the LOI’s language as moral (if not legal) leverage to hold the line.

While not every deal includes a formal retrade prohibition in the LOI, including one can differentiate an offer in a crowded field. It signals a high-trust approach: the buyer is committing to its price upfront, which sellers greatly value, knowing they won’t be dragged into another round of haggling barring a truly unforeseen catastrophe.

“As-Is” with Fraud Carve-Out

Building on the retrade-shield, many LOIs explicitly state that the buyer is accepting the property “as-is, where-is” – meaning in its current condition, with no promises of repairs or improvements by the seller – except in the case of fraud or intentional misrepresentation. This clause essentially locks in the seller’s statements about the property at the LOI stage. The buyer is signaling that it will not hold the seller accountable for issues discovered later unless those issues were actively concealed or lied about by the seller.

For instance, an LOI may include a sentence like: “Buyer will purchase the Property in as-is condition, relying on its own inspections and investigations, except that Seller confirms that it has disclosed any known environmental contamination, major structural defects, or zoning/legal violations, and Buyer reserves rights and remedies if any material known issue was withheld or misrepresented.” In simpler terms, the buyer says: I acknowledge I’m taking the property as it stands (which the seller loves to hear), but I expect that you haven’t hidden any skeletons in the closet. If you have, all bets are off.

Why include this in an LOI? Two reasons. First, it cements trust early. A seller who might be tempted to gloss over a problem later knows that the buyer has already carved out fraud from the “as-is” acceptance. It discourages the seller from trying to water down disclosures or limit their reps and warranties in the definitive contract. Second, it streamlines the PSA negotiation to come. By agreeing in principle that the deal is as-is (the default for many real estate sales anyway) except for fraud, both parties set expectations: the seller likely will not be asked to make post-closing indemnities or extensive reps, apart from fundamental ones, and the buyer retains an exit if something egregious comes to light.

It’s worth noting that the fraud carve-out is basically non-negotiable in any contract – even without stating it, sellers cannot contract out of liability for intentional fraud. But stating it upfront in the LOI has psychological value. It emphasizes that the buyer is not asking the seller to make any affirmative guarantees beyond what has already been represented, giving the seller comfort. Simultaneously, it reminds the seller that the buyer is proceeding on the assumption that no major facts are being hidden.

Overall, the “as-is with fraud exception” clause dovetails with the retrade-shield: together they assure the seller the deal terms are firm (no renegotiation for minor items) while assuring the buyer they won’t be penalized for the seller’s dishonesty. It’s a balanced way to lock in deal parameters at LOI stage.

Ancillary Clauses That Tighten the Net

Beyond the core mechanisms above, high-stakes LOIs often include several ancillary clauses that further reinforce the buyer’s advantage (or at least ensure fairness) during the pre-contract phase. These provisions are not about price or closing date, but rather about controlling information and positioning the buyer for any future opportunities related to the deal. Key examples include:

Confidentiality & Publicity Blackout: Most LOIs include a confidentiality agreement, but a lock-out LOI may go further to forbid the seller from using the existence or terms of the offer as leverage to attract other bids. This means the seller cannot announce the deal or share details with other prospective buyers (or media) during exclusivity. The goal is to prevent the common scenario where a seller quietly uses Buyer A’s strong LOI to fish for a better offer from Buyer B. A strict confidentiality and no-press clause ensures the negotiations remain discreet. It also protects both parties from premature disclosure in case the deal doesn’t close.
Right of First Refusal / First Offer: If the property in question is part of a larger portfolio or the seller owns adjacent parcels, a savvy buyer might negotiate a right of first refusal (ROFR) or right of first offer (ROFO) for those other assets. For example, the LOI could stipulate that if the seller decides to sell an adjacent parcel or another property in its portfolio within a certain timeframe, they must give this buyer an opportunity to match the offer or enter negotiations first. While not directly related to the main property’s sale, this clause is a forward-looking way to lock out competitors from future deals with the same seller. Sellers may resist granting such rights, but if the buyer has a strong negotiating position (or is paying a premium price), a ROFR/ROFO can be a valuable add-on that the seller might concede.
Break-Fee / Liquidated Damages: We discussed break-up fees in the context of exclusivity breaches by the seller. Similarly, an LOI might include a more general liquidated damages clause covering various scenarios of deal failure. For instance, the LOI could provide that if either party willfully defaults or walks away contrary to the LOI’s terms, they owe the other party a specified sum (or at least reimburse the other’s expenses). For buyers, the main use of this is ensuring the seller has something to lose if they get cold feet or entertain another buyer – the classic break fee scenario. For sellers, however, a liquidated damages provision could be used to hold a dilatory buyer accountable (though this is rare at LOI stage, since buyers typically retain the right to walk for any reason until a contract is signed). In any case, such fees must be reasonable and not punitive to be enforceable (usually a few percent of the deal size at most) (sdcorporatelaw.com).
Reverse Termination Fee: In large or complex transactions, a seller might worry about a buyer backing out due to financing or market changes after a lengthy exclusivity. A reverse termination fee is essentially the flip side of a break-up fee: it’s a payment the buyer agrees to make to the seller if the buyer cannot close the deal under certain conditions. These are more common in corporate M&A deals (for example, a private equity buyer paying a fee if it fails to obtain financing or regulatory approval). In real estate LOIs, they are very unusual except perhaps in big portfolio sales or development joint ventures. Offering a modest reverse break fee could be a way for a buyer to signal confidence – “if I walk away without cause, I’ll compensate you.” Since the buyer is already risking hard deposit money in many cases, a reverse fee might be redundant. But occasionally, it appears as an extra assurance, especially if the seller is choosing a buyer with a slightly lower price but wants a guarantee of execution.

Tactical Drafting Tips

Explicit Equitable Remedies: When drafting the exclusivity clause, state clearly that irreparable harm would occur from its breach and that the aggrieved party is entitled to specific performance or injunctive relief. By pre-agreeing on this remedy, the buyer (usually the one seeking enforcement) avoids debates later about whether money damages are adequate. Courts are more likely to grant an injunction to enforce exclusivity if the LOI itself says both sides agree it’s enforceable by such relief.
Choose Governing Law and Venue Wisely: Specify which state’s law governs the LOI and the venue for any disputes. Laws on enforceability of LOI provisions (especially around break fees or “agreement to agree” issues) can vary. A buyer will prefer a jurisdiction known to uphold contract terms as written. Additionally, having the venue in the buyer’s home turf (or a neutral well-respected forum) can provide some advantage. For example, if the buyer is based in New York, they might specify New York law and courts, which are experienced in complex real estate disputes. Being deliberate about these choices can avoid uncertainty and home-field disadvantage.
Proof of Funds Attachment: To bolster the seller’s confidence in a quick closing, consider attaching a bank statement or lender’s commitment letter to the LOI, demonstrating that the buyer has funds or financing lined up. This isn’t a contractual clause per se, but it’s a powerful supplement to the LOI. High-net-worth or institutional buyers often include a brief summary of their financial capacity or track record of closed deals. The idea is to make the seller comfortable choosing you over others by removing doubt about your ability to perform.
“Time is of the Essence” & Clear Deadlines: Emphasize that all dates and timeframes in the LOI are material by stating “time is of the essence.” Define any ambiguous terms – for example, specify what counts as a “business day” and exact times (with time zones) for deadlines. If exclusivity ends on a certain date, list the date and time (e.g., “expires at 5:00 PM Pacific Time on March 10, 2025”). Clarity prevents either party from exploiting loopholes or ambiguities. It also sets a professional tone that this LOI is to be taken seriously and adhered to strictly.

Market Dynamics & Comp Trends

Exclusivity Norms by Asset Class: Market data and deal experience suggest that exclusivity periods vary by property type and deal complexity. Simpler transactions (say, a single-tenant industrial warehouse or a triple-net lease retail asset) often have shorter LOI periods – around 15 to 30 days – because due diligence is straightforward. Multi-tenant assets like office buildings or apartment complexes, where reviewing leases and tenant financials takes more time, tend to warrant longer exclusivity, often 30 to 60 days. For example, 30 days has long been a standard initial due diligence period on many commercial deals, but 45 or even 60 days is not uncommon for larger or multi-tenant properties (adventuresincre.com). Raw land deals or development sites can sometimes require even longer exclusivity (60–90 days or more) due to the need for surveys, environmental tests, and entitlement research. Sellers, of course, prefer the shortest possible timeline; buyers often push for more time. The compromise is frequently an extension option tied to additional hard deposit money or specific milestones. Industry comparables in recent years show multifamily sale LOIs generally offering ~30 days of exclusivity, whereas complex office or portfolio transactions might start at 45 days or more.

Hard Money Trends (2023–2025): Over the past couple of years, as commercial real estate markets remained highly competitive, buyers increasingly have been willing to put up non-refundable “hard” money to win deals. Particularly in hot sectors like multifamily, offers began routinely including earnest money that went hard Day 1 or shortly after. By 2024, it was almost expected that a serious buyer would offer a meaningful non-refundable deposit to be in contention on prized assets(bestevercre.com). This trend was fueled by sellers valuing certainty of closure: a bidder that immediately risks, say, $500,000 of hard money shows far greater conviction than one offering a slightly higher price but with standard contingencies. Private-capital buyers, in particular, used this to their advantage against more methodical institutional competitors. Anecdotally, some well-capitalized buyers even employed “double escrow” arrangements – one escrow for the normal earnest deposit and a second escrow holding a negotiated break-up fee. In essence, the buyer pre-commits a separate fee that the seller keeps if the buyer defaults, on top of a non-refundable deposit. While rare, this two-layer guarantee (deposit + break fee) created an ultra-strong offer that a seller could hardly refuse. It’s an extreme tactic underscoring how far buyers were willing to go in 2025’s frenzied bidding environment to crowd out competitors and assure sellers of a smooth closing.

Risks & Counter-Strategies

Seller Pushback: Not every seller will accept an LOI packed with stringent clauses. Unsophisticated or smaller sellers might find a heavily “lawyered” LOI intimidating or may perceive it as overly one-sided. Even experienced sellers may push back on terms that seem to completely lock them down or expose them to penalties. There’s a risk that a seller will reject the LOI outright if it feels too restrictive, preferring a simpler approach or another buyer who offers more flexibility. The best practice is to tailor the aggressiveness of these clauses to the competitive context – in a hotly contested auction, a seller expects some lock-up terms; in a one-on-one off-market deal with a family owner, dropping a complex LOI might backfire. Careful explanation and a clear value proposition (why exclusivity benefits both sides) can help mitigate this.
Enforceability Limits: While many of these provisions are legally binding in theory, courts will scrutinize them if disputes arise. In some jurisdictions, courts are reluctant to enforce punitive or overreaching terms. For example, a break-up fee that looks like a “penalty” (far exceeding actual expected damages) could be struck down or trimmed by a judge (sdcorporatelaw.com). Similarly, a court might refuse to enforce a nebulous obligation to “negotiate in good faith” if it’s not well-defined, though clear exclusivity periods and confidentiality duties are usually upheld. Buyers should draft fees and remedies that are proportionate – e.g., aligning a break fee with roughly the out-of-pocket costs and lost time they’d suffer. A 2–3% fee has precedent for being reasonable, whereas something like 10% of the deal value might be deemed an unenforceable penalty. Knowing the law of the chosen venue (see tip above) is also important – for instance, California law requires liquidated damages to bear a reasonable relationship to anticipated losses, otherwise they’re void.
Reputation Concerns: The commercial real estate community is surprisingly small and reputation travels fast. A buyer who consistently wields “kill-shot” LOIs in an oppressive manner could develop a reputation as a bully or someone who ties up properties and then retrades or nitpicks. Brokers and sellers talk; if a buyer gains notoriety for locking sellers in and then leveraging minor issues to reduce price, they may find fewer people willing to take their LOI, regardless of the price offered. Additionally, overly harsh terms can sour the spirit of a negotiation. Real estate deals often involve a relationship aspect – there may be escrow extensions, post-signing cooperation needed, etc. If the seller feels cornered or mistrustful because of an extreme LOI, that could hinder the later stages of completing the transaction. In essence, the short-term win of an ultra-restrictive LOI might carry a long-term cost in goodwill.
Balanced Approach & Good-Faith Gestures: To counter the above risks, savvy buyers employ balance. For instance, they might include a sunset clause on exclusivity – such as exclusivity terminating automatically after X days if a definitive agreement isn’t reached, ensuring the seller that the property won’t be tied up indefinitely. Or they may agree to a modest mutual termination fee (each side covers the other’s expenses if they back out without cause), showing that the risk isn’t completely one-sided. Explicitly stating that both parties will cooperate and proceed in good faith (while avoiding an open-ended duty to agree) can reassure the seller that the LOI isn’t a trap. Essentially, the buyer can convey: “These clauses are here to streamline our deal, not to harm you.” By calibrating the severity of terms to be firm but fair – and by demonstrating real intention to close (quick timelines, proof of funds, etc.) – a buyer can use kill-shot clauses effectively without alienating the other party.

Frequently Asked Questions

Are exclusivity clauses in LOIs legally enforceable? Yes – if properly drafted, an exclusivity (no-shop) clause in a signed LOI is typically enforceable in court even though most other LOI terms are non-binding. Courts generally uphold explicit promises not to solicit or entertain other offers during a stated period (sinailawfirm.com). The key is that the LOI should clearly state the exclusivity obligation and be signed by both parties. While a buyer usually cannot force a sale just with an LOI, they can usually prevent a seller from selling to someone else during the exclusivity window. In fact, courts have granted injunctions or awarded damages when a seller breached an LOI’s exclusivity provision. Always identify in the LOI which provisions are binding (exclusivity, confidentiality, etc.) to avoid doubt. If these clauses are unambiguous, a seller has little defense for violating them.

How much hard money is typical in today’s market? In 2025’s market, it is common to see about 1%–3% of the purchase price put up as earnest money, and in competitive situations a portion of that is often made non-refundable (“hard”) immediately. For example, on a $10 million deal, a buyer might escrow $100,000 to $300,000 as earnest money (bestevercre.com). In a less contested deal, that deposit might remain refundable through a due diligence period. But in many 2023–2024 deals, buyers offered to make part or all of the deposit hard at LOI signing or upon PSA execution, as a sign of commitment. The exact amount varies by deal size and asset type – larger deals may involve larger absolute deposits but often still fall in that 1–3% range. The key point is that hard money has become a norm to strengthen an offer. Sellers often value a hard deposit even over a slightly higher price, because it signals the buyer is confident and won’t walk away easily.

Can a seller still market “backup offers” during exclusivity? Officially, no – a well-drafted exclusivity clause bars the seller from soliciting or negotiating with other buyers at all during the exclusivity period. That means the seller shouldn’t be showing the property, discussing terms, or entertaining letters of intent from others as long as your LOI’s exclusivity is in effect. Even casually encouraging a backup offer can be risky for the seller, as it might breach the spirit of the no-shop agreement (mk-law.com). In practice, a seller might passively receive inquiries or say “you can submit a backup offer, but we have a deal in progress,” but they cannot enter any agreement or actively shop the deal without violating the LOI. Many exclusivity clauses explicitly forbid not only signing another contract but also any solicitation or discussion of a sale with third parties. Sellers typically will hold any new interested parties at bay until your exclusivity expires or the LOI is terminated.

What’s the difference between a break-up fee and liquidated damages? They’re related concepts. A break-up fee is typically a specific type of liquidated damages – usually a set dollar amount or percentage that one party (commonly the seller) agrees to pay if the deal “breaks” due to that party’s breach or change of heart. In M&A or real estate, a break-up fee often refers to the seller compensating the buyer if the seller backs out or sells to someone else. Liquidated damages is a broader legal term meaning a pre-agreed amount of damages for breach of contract. For example, a 3% break-up fee in an LOI is a form of liquidated damages for the seller’s breach of exclusivity. Liquidated damages can also apply to the buyer – for instance, a buyer’s forfeiture of its deposit if the buyer defaults is a form of liquidated damages to the seller. The key difference is scope: “break-up fee” usually denotes a deal-specific cancellation fee (often one-sided), whereas “liquidated damages” can refer to any stipulated remedy for breach (and can be mutual or cover various defaults). In essence, all break-up fees are liquidated damages, but not all liquidated damages are break-up fees. Both are agreed upfront to avoid having to prove actual loss, and both must be reasonable in amount to be enforceable (upcounsel.com).

How fast should due diligence deliverables be provided? As fast as possible – ideally within a day or two of LOI signing. A strong LOI often stipulates that the seller must provide all key due diligence documents (financial statements, leases, title reports, etc.) within 1–3 business days. Quick delivery is critical because the exclusivity clock is ticking. In fact, many LOIs tie the start of the exclusivity period to the seller’s delivery of documents (e.g., “the 30-day exclusivity period will commence only upon Buyer’s receipt of the documents listed…” (thompsoncoburn.com)). The expectation in a competitive deal is that a seller will have a digital data room ready to go and grant access immediately. Any delays in providing due diligence materials can either extend the timeline (if the LOI allows) or create friction. So, both parties should be prepared for a flurry of document exchanges in the first 24–72 hours after an LOI is signed.

When does a “material adverse change” justify termination? A “material adverse change” (MAC) – sometimes phrased as a material adverse effect – is essentially a major, unexpected negative event that significantly impairs the property’s value or income. In a deal context, a MAC clause sets conditions under which a buyer can walk away (or occasionally a seller can, though it’s usually a buyer protection). For example, if between LOI and closing, a key tenant responsible for, say, 30% of the rent defaults or goes bankrupt, that would likely be a material adverse change. Other examples: discovery of a substantial environmental contamination, a fire or structural calamity that damages the property, or a government action (like a zoning change or new ordinance) that dramatically limits the property’s use. The LOI itself might not spell out a detailed MAC (that’s often left to the purchase agreement), but if it does, it will define materiality – often by a percentage of value or income. Generally, if an issue would cost more than some percentage of the price to cure, or reduces the NOI beyond a threshold, it could trigger a MAC clause. When a true MAC occurs, the buyer is usually entitled to terminate the deal and get their deposit back. The bar for MAC is high – routine issues or minor variances don’t count. It’s meant for deal-breaking surprises. Thus, a “material adverse change” justifies termination only when the problem fundamentally undermines the bargain that was struck.

Adjacent Topics & Resources

LOI vs. Auction Processes: The aggressive tactics described here are often used in off-market or lightly shopped deals to pre-empt competition. In a formal auction run by an investment broker, the playing field is more controlled – all bidders typically submit offers on the seller’s terms, and exclusivity is granted only to the winner. In those cases, a buyer might not get to impose a break-up fee or unusual clause unless they win the bid. Understanding the difference is key: in an auction, you focus on price and clean terms to win; once selected, exclusivity is expected as a matter of course. In one-on-one negotiations, however, a buyer has more leeway to propose lock-out clauses upfront.
Tax Considerations of Deposits: Major non-refundable deposits or break fees can have tax implications. If a buyer forfeits a deposit, the seller who keeps that money may have to report it as taxable income (often as ordinary income if the property was held for sale in a trade or business) (orba.com). The buyer might incur a capital loss or a business expense deduction, depending on the circumstances. Conversely, if a break fee is structured and paid, its tax treatment will depend on whether it’s considered part of the sale proceeds or compensation for a failed deal. It’s wise to involve tax advisors when large dollar amounts are at stake in LOI provisions, to ensure there are no surprise tax bills or lost deductions.
Templates & Checklists: Crafting an effective LOI is as much art as science, but you don’t have to start from scratch. Many industry organizations and law firms publish sample LOI templates and due diligence checklists. These resources can guide you on important sections to include (for instance, outlining purchase price, deposit, closing timeline, contingencies, binding vs. non-binding terms, etc.) and help ensure no key topic is overlooked. Due diligence checklists are particularly helpful in listing out what documents and information the buyer will need – incorporating such a list in the LOI (or as an exhibit) can set clear expectations and prevent delays. Just remember to tailor any template to fit the deal at hand; every transaction has nuances.
Case Studies & Precedents: It’s useful to study real-world outcomes of deals where LOI clauses came into play. For example, there have been court cases where sellers were held liable for breaching an LOI exclusivity (learning about those cases underscores why sellers must tread carefully). Other cases illustrate how vague LOIs led to litigation over whether there was a “binding deal” or not. By examining a few high-profile disputes or successes – perhaps a notable portfolio sale where hard money won the day, or a failed deal where a break-up fee was triggered – professionals can glean insights into best practices. These stories often make abstract concepts more concrete and highlight the pitfalls to avoid when employing lock-out clauses.