A Letter of Intent (LOI) is a common way to express your intention to purchase a property without having to write a formal, legally binding contract. The Letter of Intent is presented to a vendor in the very early stages of a project. A buyer’s intentions are stated clearly and simply so that the seller knows exactly how the buyer wishes to purchase the property and on what terms. Essentially, a Letter of Intent is about opening a dialogue and creating a framework for that dialogue between buyers and sellers.
Definition of a Letter of Intent
“A Letter of Intent is essentially a written statement expressing the sender’s intention, under certain circumstances, to take or forgo some action, such as entering into a future agreement with the recipient, or, more generally, carrying out the business activities mentioned in the letter of intent.”
I often submit a Letter of Intent right after finding a building, quickly analyzing the operating numbers, and recognizing that a deal could be struck. This whole process can take as little as 30 minutes. I want the seller to recognize that I have a serious interest in the building and not just a ‘tire wrecker’. The sooner he knows he has a potentially viable sale of his property, the sooner he will stop responding to calls and requests from others. In other words, his attention will be focused on talking to me.
The letter of intent in the tender process
This letter of intent is not a traditional letter. You don’t write it down and forget it. It is a living document that should be updated and completed regularly throughout the tender process. In the bidding and buying process, the letter of intent tells the seller that you are interested not only in submitting a purchase proposal, but also in receiving all updates and changes to the letter of intent. . The Letter of Intent is an agreement to be agreed upon in the future. Once the investor and seller meet through the letter of intent, a formal purchase agreement would be drafted.
If the letter of intent is accepted, the due diligence period will begin. It will continue until the time agreed by both parties in which, at the end of the term, a binding contract is constructed. Terms may change during this time if previously undisclosed aspects of a property are discovered. For example, there may be soil contamination in which the buyer will not want to buy the property and will safely withdraw from the non-binding contract. Or maybe the property is in much worse condition than originally thought, forcing the buyer to negotiate a reduced purchase price.
If it is not binding, is the letter of intent a worthless document?
A letter of intent is not an offer or a contract. This does not commit you or the seller to the project. In other words, it cannot be enforced. Often, in the letter of intent, there is often, at the bottom or in the body, a paragraph indicating and reinforcing the non-binding nature of the letter of intent.
This should be a basic understanding of the nature of the letter of intent. This language is
usually just an inserted reinforcement to let anyone who may read that this is not a binding document, nor an agreement to be agreed upon in the future, unless specifically written.
Specific details of buyer due diligence, cash flow and requirements, how these terms will be enforced with sellers. In most initial presentations, accommodation of the seller’s financial needs is what is discussed. As a result, the focus is more on the needs of the seller than on the needs of the buyer.
For this reason, the dialogue is broken and the purchase project falls through.
When the needs of both the buyer and the seller are taken into account from the start, it helps to ensure movement towards the contract. s are spelled in the . Buyers are often disappointed when their offers die at the LOI stage, with emotion aside, understanding the nature of the LOI is just a tool to open up the dialogue for see if an acceptable offer can be created. This allows the buyer to focus on the next viable transaction. So, in this respect, the letter of intent is a very useful document.
Writing the letter of intent
Use formal letterhead and do not handwrite the letter of intent. A letter of intent should have five basic elements in its content:
1. The name of the seller or seller’s agent
2. Buyer’s name
3. The address and description of the property
4. Details of your offer, which include:
A. Purchase price
e. Due diligence requirements
The body of the Letter of Intent would address the following;
Conditions: We must specify the offer price, the specific financing conditions and contingencies, the down payment, where and what type of financing to obtain.
Conditions: We will often use this part of the letter of intent to request documentation regarding the performance of the property, such as financial statements or other items that can help us with our due diligence.
Due Diligence Timeframe: Specific timeframe for consummation – usually around 90-120 days – or a so-called “dead” date by which the transaction must be completed and the buyer must have completed their due diligence, financing in place and ready to close the escrow.
Closing date: the specific date on which you can complete all due diligence and arrange financing and any other terms or provisions. Where a formal contract will be drafted if the Letter of Intent is approved if elected, a clause that makes the Letter of Intent non-binding. Indicate to the seller that you are interested in being kept informed of any changes related to this property, i.e. the LOI document itself, essentially an invitation to respond.
Conclusion: Your signature and a place for the seller’s signature: close the letter formally with “sincerely” or a similar polite phrase. Sign your name and title. Be sure to provide correct and complete contact and reference information for all future correspondence. Remember to consult your lawyer, tax advisor and other advisers for more information before entering into the formal contract.