Letter of Intent
Definition and meaning of Letter of Intent in real estate.
A letter of intent is a formal document that outlines the preliminary agreement and key terms between a buyer and a seller before a final contract is written. It demonstrates a serious interest in purchasing a property and serves as a blueprint for the final purchase agreement.
In more detail
In commercial real estate, this document is widely used to negotiate terms such as purchase price, financing contingencies, and due diligence periods without the immediate expense of drafting a full contract. While most terms in a letter of intent are non-binding, it often contains binding provisions regarding confidentiality and exclusivity.
The letter allows both parties to determine if they are aligned on key terms before committing time and money to finalize the sale. If negotiations fail, either party can typically walk away without penalty, unless otherwise agreed.
Key facts
| Category | Buying & Selling |
|---|---|
| Also known as | LOI, term sheet, memorandum of understanding |
| Typical timing | Submitted early in the negotiation process before the purchase contract |
| Watch out for | Accidentally writing binding language when you intend it to be non-binding |
An investor submits a letter of intent to purchase an office building for a set price, establishing a thirty-day window to negotiate a binding contract.
Frequently asked questions
Is a letter of intent legally binding?
Most terms are non-binding, but specific clauses like confidentiality, exclusivity, or governing law can be made legally binding if both parties agree.
Why use a letter of intent instead of a purchase contract?
It allows parties to quickly test if they agree on major deal terms before spending time and legal fees on a detailed, binding purchase contract.