Issuance of Letter of Intent
A letter of intent (LOI), also known as a statement of purpose, is generally an agreement to agree between parties. It is a document that outlines the terms between parties who have not yet formalized an agreement into a binding contract. It will state what each party will or will not do. Letters of Intent are generally non-binding and unenforceable; instead, it will indicate an intention to do something at a later date.
An LOI for the purchase/sale/lease of a commercial real estate parcel can be a very important part of the contract negotiation process and must be handled properly. Letters of Intent are often used to obtain preliminary agreement of the business terms (ex. purchase, rent, etc.) on a matter before full details are worked out and the drafting of the contract. LOIs often will establish who the transaction will be between, the location of the property or space, a timeline, confidentiality of elements being negotiated and identifies how discussions shall proceed for negotiating and drafting of a formal binding agreement.
LOIs may fix the main issues under discussion in written form and also clearly establish the rules which may be governing negotiations, such as confidentiality of information (confidentiality agreements). LOIs may also aid in cases where multiple bidders or buyers are involved and competing for the same property.
LOIs often include the following:
- Non-disclosure agreements to third parties
- Due Diligence period deadlines
- Closing date
- Sales price
- No-Shop clauses
- Transferability of the document
- Break-up fees if the deal doesn’t go through
- Termination dates and conditions
- General contingencies and overall parameters
LOIs can be established relatively quickly while the actual negotiating and drafting of the contact can take weeks to months with numerous revisions and drafts that can be costly; therefore it is recommended that you work with an experienced commercial real estate attorney to protect your interests and rights. While many who enter LOIs move forward and complete the transaction in good faith, in some situations, participants may back out of deals, which can lead to litigation. LOIs can be ambiguous, they may become public and they can produce expectations or anxieties on the parts of employees, vendors, and customers.
LOIs should be drafted, written and reviewed very carefully by your attorney to state the critical business terms of a commercial real estate sales contract as specifically and in as much detail as possible. The LOI should also clearly state that the LOI is intended by the parties to be non-binding and does not create an enforceable agreement in any way. Preparing a well-drafted and concise LOI can save the parties time and attorneys’ fees in the negotiation and drafting phase of the commercial real estate sales transaction.
If you have questions regarding letters of intent in relation to commercial real estate transactions, contact the experience Real Estate attorneys at KALIS, KLEIMAN & WOLFE, P.A., the South Florida-based real estate law firm today at (954) 791-0477.