No one wants to waste time and money on a deal that never gets done. With this in mind, the letter of intent (LOI) was created. An LOI is a detailed, non-binding letter from one party to another that signifies genuine interest in completing a deal.
The use of an LOI implies both parties’ intent to reach an agreement on all major deal points before signing the final documents. The LOI helps parties identify and discuss issues such as:
- Lease term
- Tenant improvement allowance
- Security deposit
- Personal guarantee
- Parking allocation
- Annual increase in lease rate
The LOI should always state that it is non-binding (unless purposefully not included by either party). With this statement, legal review can wait until both parties reach an agreement and prepare final documents.
Below are the common elements of a letter of intent:
- Identification of the parties involved (buyer/seller or tenant/landlord)
- Definition of key terms such as purchase price, lease rate, rent increase, lease length, etc.
- Specification of a time frame for acceptance of the LOI
- Clear statement that the LOI is non-binding
- Statement that the LOI will be superseded by a signed agreement
With an LOI, you’ll be able to move forward in a deal with confidence. Your broker can help create an LOI that meets your specific needs, finalize a lease/purchase contract and prepare to open escrow. Contact one of our trusted commercial real estate advisors to discuss your upcoming transaction.