Letter Of Intent: A Key Document in Commercial Real Estate
What Is a Letter of Intent?
A Letter of Intent is a non-binding letter that states a future plan. In some markets, it’s called a Proposal or a Memorandum of Understanding.
The Letter of Intent or LOI is utilized in a slew of different situations. Here are a couple of the most common uses:
- The Letter of Intent is used to outline the key aspects and relevant information for a proposed transaction.
- The Letter of Intent signifies that a party is committed to moving forward with a transaction.
- The Letter of Intent is used as a guiding document for the final purchase agreement or lease.
When Is a Letter of Intent Utilized?
The Letter of Intent is used in commercial real estate, such as buying, selling, or leasing a property, to put all the points about a proposed agreement into writing. One reason for doing this is that there is no need for either party to incur attorney fees in drafting/reviewing leases or purchase agreement if neither party is able to agree on the basic terms of the lease or purchase.
It is very common that before negotiating a lease, a commercial real estate broker representing the tenant will request that the listing agent or owner to provide a draft LOI for what is being offered. Then, the tenants agent will make amendments to that draft in order to meet the specific needs and desires of their client. Alternatively, the tenant’s broker can proceed with submitting the initial LOI and then the landlord can negotiate off of that.
Either way, whether the tenant, landlord, buyer, or seller provides the initial LOI, there are specific elements that should always be included in the LOI.
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How Do You Write a Letter of Intent?
Here’s a quick run-through of how to write a Letter of Intent:
- Write an introductory paragraph that highlights the purpose of the Letter of Intent. This part is what indicates whether there is interest in purchasing a piece of commercial property or leasing.
- State the parties involved in the potential transaction.
- Detail the key deal points such as property description, disclosure of any commercial real estate brokers involved, and any other conditions relevant to the potential deal.
- Include the offer terms and conditions including the lease/sale price and any required contingencies.
- State whether or not certain parts of the LOI are binding, a non-disclosure agreement or confidentiality clause, and remedies for breaching the binding provisions of the Letter of Intent.
Once both parties have agreed to the terms detailed in the LOI, then, you can proceed to the next step of involving the attorney who will then draft and negotiate the lease or purchase agreement.
We hope this article proves to be useful when it comes to furthering your understanding of what a Letter of Intent is and what is included. As you can see, a Letter of Intent is a document that summarizes a proposed transaction between two parties. For more specific questions, we suggest that you consult with a professional real estate agent.
How Can We Help You?
If you’re interested in either buying, selling, or leasing commercial real estate, you’re in the right place. Saman Saba is a commercial REALTOR® and a real estate attorney whose ultimate goal is to empower real estate sellers, buyers, and lessees to make sound and informed decisions about their most valuable assets. Reach out today to learn more about your options and what you can do regarding your commercial property.
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