What’s Absolutely Critical In Your Letter of Intent
Whether you intend to lease or buy commercial real estate, one of the first (and most important) documents you’ll need is a Letter of Intent, or LOI for short.
Here are some quick insights about LOIs:
It is a non-binding agreement.
It represents a mutual agreement or “meeting of the minds” before both parties get too deep into the transaction.
It highlights key aspects of the proposed transaction between both parties
It can be used as a guide for drafting a formal binding contract.
Your Real Estate Broker will usually draft this.
Now here’s what’s absolutely critical that must be included:
Terms and Conditions - While these are not final until a final contract is signed, it does highlight some agreed-upon conditions of the sale. This can also avoid future negotiation issues.
Standstill Agreement - This basically states that the Seller will not market the property in any way or respond to any offer for purchase for 30 days. It gives the purchaser and seller a specified time (usually 30 days or as defined in the LOI) to exclusively negotiate with one another
Conditions to Close - The LOI will briefly outline who will pay for the costs and fees, proposed closing dates, and deed/title conditions for closing.
Confidentiality Disclosure - Exactly like it sounds. Both parties will not discuss the sale with the exception of lawyers, accountants, counselors, etc.
Due Diligence Period: Buyer shall have a period of 30 - 60 days (varies) from full execution of the Agreement to perform environmental studies, review the title report, meet with local and or state officials, and conduct any other research necessary to determine the feasibility of the proposed improvements and Intended Use (the “Due Diligence”).
Due Diligence period is the most critical part. During this period, the BUYER has the EXCLUSIVE Right to the property. Once this period is over, Deposit Money will typically be NON-REFUNDABLE.
During this period, BUYERS are allowed to cancel the contract and receive their deposit back.
Sellers want this to be short and Buyers want this to be as long as possible.
Think of it as BEING ENGAGED at the end of DD, if you choose to leave after DD and before the wedding, you can do it, but it will cost you a lot of time and money.
Have an Idea? Question?
Commercial real estate can be a great investment choice. If you have any questions, let’s chat! I have extensive background in almost all these types of the spaces, and would love to answer any of your questions.
