A letter of Intent is a fundamental document in commercial real estate. In today’s post, we discuss some of the most important aspects of letters of intent, including a basic definition and the typical elements included in a letter of intent.
What Is a Letter of Intent in Commercial Real Estate?
A Letter of Intent, often abbreviated as LOI, is a preliminary, non-binding agreement signed by the parties involved in the sale or lease of a commercial property. In addition to laying out the basic terms of an agreement, a letter of intent signifies a serious commitment to move forward with a transaction.
Although as a general rule, a letter of intent is non-binding, the signing parties can agree to give binding force to certain portions of the letter.
Why Are Letters of Intent Important?
Letters of intent are important because they precede a legally binding document, serving as a record of the major points agreed upon by the interested parties and demonstrating a basic commitment to completing a commercial real estate transaction.
By registering the basic terms of a proposed deal, a letter of intent offers a roadmap that makes it easier to navigate the buying or leasing process.
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What Are the Elements of a Letter of Intent?
Keep in mind that letters of intent are written as letters, not as bullet points. Other than that, there’s no predetermined structure or style when it comes to commercial real estate letters of intent.
Depending on the level of detail, letters of intent can range from one to several pages. However, all letters of intent must include the basic elements crucial to the transaction.
Regardless of the length or structure of a letter of intent, they must state information such as:
- The parties involved
- The property in question
- Purchase price (if applies)
- Length of lease (if applies)
- Amount of the deposit
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Disclaimer: This material is for general information and educational purposes only. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.