LOI Is Not a Lease: Why a Tenant at LOI Stage Does Not Make a Property Pre-Leased

October 8, 2026

A listing says "pre-leased to a national brand." The yield looks clean. Then you ask for the lease deed, and what arrives is a two-page letter of intent.

That gap matters more than most investors think.

The short answer

A letter of intent (LOI) is not a lease. An LOI records that a tenant intends to take the space on certain terms. A lease is the contract that actually binds the tenant to pay rent for a fixed period. In India, a commercial lease for more than one year must be made by a registered instrument. Until that registered lease exists, the property is not truly pre-leased, and the "yield" on it is a projection, not income.

Why this matters

When you buy a pre-leased property, you are really buying a rent stream. The price is set off that rent. So the first question is not "who is the tenant?" It is "what document makes that tenant pay?"

Fact: Indian courts have generally treated an LOI as an expression of intention to enter into a contract later, not as the contract itself. Its wording and the parties' conduct can change that, but the default is non-binding.
Fact: Under Section 107 of the Transfer of Property Act and Section 17 of the Registration Act, a lease for a term exceeding one year must be registered. Under Section 49 of the Registration Act, an unregistered document that needed registration does not affect the property and generally cannot be used as evidence of the lease.
What that means for you: if the tenant walks away at LOI stage, you may have very little to enforce. You would own a vacant unit bought at a pre-leased price.

Please verify how these rules apply to a specific deal with a qualified lawyer. Stamp duty and registration rules also vary by state.

VRX observation: how LOI-stage deals get presented

In the NCR market, we regularly see properties marketed as "pre-leased" where the tenant has only signed an LOI. The brand name is real. The rent figure is real. But the lease is not signed or registered yet, and rent may not start for months.

At VRX Capital, we do not present a property to investors as pre-leased while the tenant is only at LOI stage. We ask for the lease deed before a property goes to a client. An LOI is a good sign. It is not a rent stream.

A practical framework: five questions before you trust "pre-leased"

At VRX, yield is never the thesis on its own. We look at tenant, lease, cash flow, asset, location, price and exit together. The LOI question sits right at the start, under "lease."

Is there a signed lease, or only an LOI? Ask for the document itself, not a summary of it.
Is the lease registered? For a term over one year, ask for the registered copy and check the registration details.
When does rent actually start? Look for the rent commencement date. Many commercial leases give the tenant a rent-free fit-out period after handover.
What is the lock-in? Rent you can rely on is mostly the rent inside the lock-in. After that, the tenant may be able to exit on notice.
Who signed it? The tenant entity on the lease matters. A local franchisee and the parent brand are not the same covenant.

Not sure what you are looking at? Send us the documents and we will tell you plainly which stage the deal is at. Call / WhatsApp: +91 9315368515.

Illustrative example

The numbers below are made up to show the arithmetic. They are not a real property or a market benchmark.

A unit is offered at ₹6 crore. The seller quotes rent of ₹3,00,000 per month from a brand that has signed an LOI. That works out to ₹36 lakh a year, or a 6.0% gross yield on price.

Now read the fine print. The lease is not yet signed. The LOI gives the tenant an eight-month fit-out period before rent starts.

Even if everything goes to plan, you earn nothing for eight months. That is ₹24 lakh of "yield" you paid for but do not receive — 4% of the price.
If the tenant drops out before signing, you hold a vacant unit priced as if it were leased.

The tenant may well sign. The point is that you should price the risk that it does not, or wait until it does.

Common mistakes we see

Treating a well-known brand name as a substitute for a signed lease.
Calculating yield from LOI rent as if it were already being paid.
Paying a token amount before seeing any tenancy document.
Accepting an unregistered lease for a multi-year term.
Ignoring the gap between handover and rent commencement.

Checklist before you commit

Signed lease deed in hand (not just an LOI or term sheet)
Registration details checked for any lease over one year
Rent commencement date confirmed
Lock-in period and notice terms read
Tenant entity on the lease identified
Rent receipts or bank credits, if rent has already started
Yield recalculated on rent actually being paid, not promised rent

FAQ

Is an LOI legally binding in India?

Generally, no. Indian courts have usually treated an LOI as a step towards a contract, not the contract itself. Some clauses, such as confidentiality or exclusivity, can be made binding if the LOI says so. Check the exact wording with a lawyer.

Can a property be called pre-leased if the tenant has only signed an LOI?

It is marketed that way sometimes, but it is not pre-leased in the sense an investor needs. Until a lease is signed and, for terms over a year, registered, there is no enforceable rent stream to buy.

Does a lease need to be registered?

A lease for a term exceeding one year must be registered under Indian law. An unregistered lease of that kind generally cannot be relied on as evidence of the lease terms. Rules on stamp duty differ by state.

Should I ever buy at LOI stage?

It can make sense if the price reflects the risk, or if the deal is structured so that completion depends on the lease being signed. That is a negotiation and legal question, not just a yield question.

What is a rent-free fit-out period?

It is time given to the tenant after handover to prepare the space before rent starts. It is common in commercial leases, and it delays your first rent cheque.

Talk to VRX Capital

If you are looking at a "pre-leased" property and want a second view on where the deal really stands, we are happy to look at it with you. You can also read more about how we work with investors or get in touch.

Call / WhatsApp: +91 9315368515

This article is general information, not legal, tax or investment advice. Please verify legal and tax points with a qualified professional before acting.