If you’re new to purchasing commercial real estate, you may not be familiar with a letter of intent (LOI) and the role it plays in the transaction. If you’re interested in a property, though, an LOI will be one of your first steps in seeking to purchase it.
An LOI isn’t a legal document, and it’s nonbinding. Nonetheless, neither a potential buyer nor their broker, if they have one, should write it alone. You’ll see why as we explain the purpose of it and what information needs to be included.
In the LOI, a prospective buyer states their intent to purchase a commercial property. It includes the terms of the offer and starts the negotiations. Typically, the offer is based on some early due diligence a buyer or their representatives has done on the property as well as information they’ve garnered from the seller.
What information is included in an LOI?
An LOI includes basic information about the buyer, seller and property. It should also include details like:
- The proposed purchase price
- Financing or loan terms
- The escrow deposit amount
- How long the buyer needs for due diligence
- Documentation they need from the seller as part of that due diligence
- What inspections will be conducted and the timeframe for doing so
- Planned closing date and closing costs
The LOI, as we noted, is a preliminary step in the purchase process. However, it sets the initial terms, so it can be used as a template if the buyer and seller move forward with the transaction and draw up a purchase agreement that – unlike the LOI – is binding.
Whether the LOI is coming from you or your broker, it needs to be written carefully and be unique to your goals and to the property. Having sound legal guidance when writing an LOI is crucial.